Limited company owners can pay themselves in whatever form they like, which offers you the opportunity to be more tax-efficient – a huge attraction to operating as a limited company and certainly one of the main advantages when it’s done correctly.
Many owners of limited companies pay themselves in a combination of dividends and salary. The advantage here is that dividends have a lower tax threshold, so they allow you to be more efficient with tax than you could be if you simply paid yourself a salary.
It’s important to remember that a limited company pays corporation tax as well as the owner/director having to pay their own tax personally. However, a good accountant will make sure that you’ll end up in the best position possible to minimise your tax bills.
Next up is the fact that if you incur losses or debt, you’re not necessarily personally liable. If your business incurs losses or debt, it’s not your responsibility to deal with these. All directors and possibly shareholders will be responsible for the debt, which means that your personal assets are protected. However, after the credit crunch many financial institutions and banks ask for the directors of a company to personally guarantee at least some of the debts.
Limited company business models are generally better perceived because of the limited liability setup of the company. Contractors, clients and other companies are more likely to work with a limited company because they perceive this type of company to have more credibility. It just helps you look a little bit bigger than perhaps you are – fake it ’til you make it!
As the director of a limited company, your company is a separate entity to you. This means that you don’t need to worry about having insurance policies to avoid being sued personally. In any legal dispute, the worst outcome is that your company will be sued, and not yourself. You will however need to make sure that you have all of the appropriate insurances to operate through a limited company.