When moving into self-employment, many people take the route of working through a limited company, rather than becoming a sole-trader. One of the main reasons for this choice is liability. Sole traders are their own business, and therefore they are personally responsible for any outstanding debts. Limited companies are separate legal entities, and the business itself is liable, not the individual. In fact, if the business is sued or owes money, the owner is only liable for the amount of money they have invested within the company and no more. This obviously offers security and peace of mind, but it’s not without its drawbacks.
Working through a limited company can be more restrictive than simply being a sole trader. Due to the company being a separate legal entity, there tends to be more regulations around taxes, finances and the overall separation between the business and the individual.
Open a Business Account
Limited companies are their own separate legal entity and therefore require their own bank account. Opening the bank account should be the first thing that you do after registering the business with Companies House.
Technically, there is no legal obligation for you to open a bank account for your limited company, but it would be virtually impossible to run the business without one.
Personal vs Business
As already mentioned, one of the main goals when running a limited company is to ensure that the personal and the business are kept separate. This is most important when it comes to finances. For example, paying for a personal expense using your business account could complicate things. It can be convenient and easily done but can also have a detrimental effect in the long run, especially when considering taxes. However tempting it may be, try to keep both accounts completely separate.
Conversely, using your personal bank account to fund an aspect of your company, can be just as problematic. Of course, if you do invest in your company, you can claim this money back, but it’s so much simpler to just avoid using personal finances. This is why it’s important to open a business bank account as soon as possible, to ensure you immediately have the means to pay for things via the company.
Credit Cards
Many business owners choose to take out a business credit card. This makes sense as it not only offers peace of mind that money will always be available; it also makes business accounting much easier. Credit card statements keep track of your business expenses and collecting evidence for tax season is therefore more straightforward. Furthermore, business credit cards also help to build the company’s credit rating, making future borrowing much easier.
Again, keeping personal and company finances separate is important, and this also applies to credit cards. Try not to make personal charges on the company credit card. Some business owners will use one credit card for both personal and business purchases. This can be complicated, but the best way to approach it is to ascertain which proportion of the credit is for which purchases. If you set up boundaries prior to using your card, it’s simpler to keep everything separate.
Get Help
Working through a limited company has its own set of rules and guidelines, which can easily become overwhelming, especially when you’re first starting out. If you are having any trouble with the financial and tax aspects of owning a limited company, we can help. Working with Salhan Accountants will ensure that your company follows all of the relevant regulations.
