As a result of the latest Budget, the self-employed and indeed all employees have been hit with an additional 1% on National Insurance Contributions (NICs).

Chris Wiper, Senior Partner at Close Thornton Solicitors, thinks it might be time for the self-employed to revisit the idea of setting up a limited liability company.

Everyone - from electricians to high earning consultants - who has more than one client or customer can ‘incorporate’ and effectively turn themselves into a company. They can pay themselves dividends as well as a salary. Crucially, dividends are not subject to National Insurance contributions.

Companies also benefit from more generous corporation rates. It is estimated that a self-employed person earning £50,000 per year could save £3,500 in tax and National Insurance by incorporating.

Professional advice is essential before going down this route as each case is different.

How to incorporate
Forming a company is relatively inexpensive. A ready-made company can be bought ‘off-the-shelf’ and adapted to your requirements.

If you set up a limited company you are obliged to provide Companies House with details about your business, including information about directors, registered offices and share capital. If your turnover exceeds £1 million you will also have to file audited accounts at your own expense. The main advantage of being self-employed is that your details do not have to become public, but the money you may save by incorporating may make it a price worth paying.

Directors’ responsibilities
For sole traders and partners the risk is that they have personal responsibility for the debts and commitments of the business. Shareholders in a limited company are not generally liable for the debts of the company unless they are guilty of unlawful trading. If their shareholding is fully paid then they cannot be called upon to pay the company’s creditors. However, in practice, a bank or landlord will usually ask company directors to give some kind of personal guarantee.

The importance of Shareholder Agreements
Shareholders should make sure that they have a Shareholder’s Agreement. This will detail what happens if the shareholders fall out or die, including the right to buy a deceased shareholders’ shares. For this reason, shareholders may consider taking out Key Person Insurance.

For further information about any aspect of company law, please contact Chris Wiper, Senior Partner, Close Thornton Solicitors on 01325 466461.

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