Should You Go Freelance Or Set Up A Limited Company?

If you’re setting up on your own in business, you’ll need to decide early on whether you’re going to just go freelance or if you want to set up as a limited company. What’s the difference and what should you choose to do? Before you decide, take some time to look into the difference between the two and make an informed decision. 

There are a few key differences between going freelance and registering a limited company with someone like YourCompanyFormations that you should know about. Remember, you can always start out as a freelancer and register your company later as your business grows, but going the other way is much harder. The choice you make may also depend on the kind of business you plan to run. For example, some businesses may be better suited to working alone as a freelancer, such as copywriting. Others may be better off as a limited company, such as running a copywriting agency. 

Freelance or Limited Company: Paying Taxes

As a freelancer, you will have to pay income tax on your earnings, which currently would be 20 – 45% depending on your income. You will also need to pay NICs, which can be paid as a flat rate or as a percentage of profits. You’ll have to be tax savvy too, as you’ll need to submit your own tax return and pay your bill yourself. 

With a limited company, your profits will be subject to corporation tax, which is currently 20%. As a Director, you can pay yourself a salary and take any other company profits in dividends. 

Both are entitled to make purchases and spend money for the business, which is tax deductible. Managing the taxes could be easier if you have an in-house finance team, rather than having to outsource to an accountant to manage the tax bill.

Both are also responsible for submitting their taxes, so it’s wise to have an accountant to help you and avoid getting it wrong. 

Freelance or Limited Company: The Law

The other big difference between limited companies and directors is your legal status. As a freelancer, you are your business. With a limited company, you and your business are separate legal entities. This changes what you are and are not responsible for. 

This would mean that is something went wrong, you would be personally responsible as a freelancer, but your company would be responsible if you were a Director of a company. This means that shareholders and directors would not be held responsible for company debts beyond their personal investment. If your company went bankrupt, you don’t have to go bankrupt too. As a freelancer, if you go bankrupt, you go bankrupt. If you go freelance, take out sole trader insurance to protect you from financial troubles.

Both options come with risks, but there is some more built in protection as a director of a limited company. Freelancing naturally comes with some financial risks, but the rewards of working yourself and being your own boss can make it all worthwhile, even when things are challenging. 

Freelance or Limited Company: Employees

Whether you’re freelance or a company director, you can employ people to help you with your business. Many freelancers don’t realise this. 

Whichever option you choose, taking on your first employee works in much the same way. The first thing you need to do is register as an employer with HMRC. Your new staff member should get a written statement of employment which explains the terms of their job. 

However you work, you need to set up some kind of payroll, so you and your new employee pay PATE taxes. You might have to enrol employees in a workplace pension scheme and provide other work benefits. Freelance and limited company owners have the same responsibilities when it comes to being an employer. 

Which Is Better?

Neither option is better or worse, but one will work better for you than the other. Weigh all the pros and cons before you decide. 

The limits on financial liability as a limited company is an advantage, as it limits the potential damage to your own finances. This does mean that your accountancy fees will likely be higher, however. There’s also more regulation and much stiffer penalties for missing deadlines. Your accounts would also be visible to the general public via Companies House, which you might not want.

Whichever option you choose, do your research first and make sure you tick all the legal boxes and keep everything above board. 

Until next time,



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