What is Limited Company?

A limited company (Ltd) is a business that is legally separate from its owners (shareholders) and managers (directors). This separation provides "limited liability" — meaning the owners' personal assets are protected if the business runs into debt.

Types of limited company in the UK:

• Private limited company (Ltd): The most common type for freelancers and small businesses. Shares are held privately and cannot be traded publicly
• Public limited company (PLC): Shares can be traded on a stock exchange. Not relevant for most freelancers

Setting up a limited company:

• Register with Companies House (from £12 online)
• Choose a company name (must be unique and end with "Limited" or "Ltd")
• Provide a registered office address
• Appoint at least one director
• Issue at least one share
• File Articles of Association and a Memorandum of Association

Advantages over being a sole trader:

• Limited liability: Your personal assets are protected
• Tax efficiency: Corporation Tax is 19-25% (vs up to 45% income tax). You can take a mix of salary and dividends to reduce your overall tax bill
• Professional image: Some clients prefer working with limited companies
• Income splitting: You can issue shares to family members to distribute dividends

Disadvantages:

• More admin: Annual accounts, confirmation statements, Corporation Tax returns
• Public records: Your accounts and director details are publicly available at Companies House
• Higher costs: You will likely need an accountant (£500-£1,500/year)
• IR35 considerations: If you work through a limited company for a single client, HMRC may consider you a "disguised employee"

A limited company pays Corporation Tax on its profits (25% for profits over £250,000; 19% for profits under £50,000, with marginal relief in between). Directors typically pay themselves a small salary (up to the NI threshold) and take the rest as dividends, which are taxed at lower rates than employment income.