Ltd company or self-employed – which to choose?

Setting up your own business in the UK is simple and can bring us many benefits, but it is worth checking first which form of business will be optimal for us. In the United Kingdom we have several forms of running a business to choose from, but in this article we will take a closer look at the most popular ones: self-employment and the Ltd company. Both options have their pros and cons, and the choice between them has a significant impact on how the business is run, its tax obligations and its financial benefits.

Self-employed: The basics

Self-employment is nothing other than working for yourself as an individual entrepreneur (sole trader). Many people in the United Kingdom choose this form of running a business because of the simple registration and tax filing process. It is worth remembering, however, that with self-employment the entrepreneur’s personal and business assets are not treated separately, which is why self-employed people bear full responsibility for the business’s financial liabilities and any debt.

Who can register as self-employed in the UK?

To register as self-employed you need to have a National Insurance number. Those who do not have a NIN will have to apply for one before registering their business - the application is made online.

A NIN can be obtained by people who:

• live in the United Kingdom (e.g. hold resident status, meaning they spend at least 183 days in the UK during the tax year),

• have the right to work in the UK.

How to register as self-employed in the UK?

Running a business as a sole trader requires registering for Self Assessment. This is necessary once you have earned more than £1,000 from self-employment during the tax year. If you need to file a Self Assessment for a given tax year, you must register by 5 October.

Registering as self-employed in the United Kingdom is a relatively simple process that can be completed online:

• Log in to your personal tax account in the Government Gateway system. (If you don’t have an account yet, you can create one online or register your business with HMRC by sending completed forms by post.)

• Once logged in, select “Add a tax to your account” - you need to register for Self Assessment and as a payer of Class 2 National Insurance contributions.

• After registering, you will receive your Unique Taxpayer Reference (UTR) number by post - usually within 15 working days.

You must also register for VAT if your VAT-taxable turnover for the last 12 months exceeds £90,000, or you expect it to exceed this amount within the next 30 days.

If your business provides services within the construction industry, you will also need to register for the CIS (Construction Industry Scheme).

What are the obligations of self-employed people?

• Keeping records of the business’s expenses and income,

• Repaying the business’s debts,

• Filing an annual tax return,

• Paying Income Tax and National Insurance contributions,

• Keeping records relating to VAT, the PAYE system and grants received from the Self-Employment Income Support Scheme - if these apply to your situation.

What are the advantages of being self-employed?

Self-employment in the United Kingdom carries many advantages, including a long tax filing window, simple accounting, a high tax-free allowance (£12,570 in the 2024/25 tax year), as well as a British pension. The biggest disadvantage, which cannot be ignored, is of course bearing personal responsibility for the business’s debts.

Ltd company: The basics

A private limited company, most often simply called an Ltd company (short for limited), is the equivalent of a Polish limited liability company. Importantly, you can run an Ltd company on your own, being both its sole shareholder and director.

Before starting a business, it is worth considering which type of company will be best in your situation - a private company limited by shares or limited by guarantee.

• Limited by shares: It is legally and financially separate from the people who run it, has shares and shareholders, and can keep its profits after paying tax.

• Limited by guarantee: It is legally and financially separate from the people who run it, has guarantors, and invests its profits back into the business.

The Ltd company is popular in many industries, and it also works very well for freelancers, e.g. bloggers, photographers, programmers, etc. This is because running the company does not require a permanent office.

How to register an Ltd company?

To register an Ltd company in the UK you need:

• A company name: The name must be unique and end with the word “limited” or the abbreviation “LTD”.

• A director: A limited company must have at least one director.

• A shareholder: A limited company must have at least one shareholder - the director and shareholder can be the same person.

• Documents: Every Ltd company needs a memorandum of association (a statement signed by all shareholders confirming the formation of the company) and articles of association (the rules for running the business, signed by the shareholders, director and secretary).

• An address: An Ltd company must have an address in the United Kingdom (in the country relevant to the place of registration, e.g. a company registered in England must have an English address). It does not have to be the address of the company’s registered office or place of business, but if another address is given (e.g. that of an accountancy practice or agent), it must allow post to be delivered to the company. An email address must also be provided.

Registering an Ltd company in the UK

You can register an Ltd company online, by post or through an agent. You need to register with Companies House and with HMRC to pay Corporation Tax, i.e. income tax (within 3 months of starting to trade).

• Create a Government Gateway account for the company. Online registration lets you register with Companies House and as a Corporation Tax payer at the same time.

• You need to provide at least 3 pieces of personal information for each shareholder (e.g. place of birth, mother’s maiden name, National Insurance number).

• Pay the registration fee: £50.

• Registration usually takes no more than 24 hours (it may take longer if there is a high volume of applications).

• You will receive confirmation of the company’s formation (certificate of incorporation).

Who can register an Ltd company?

Anyone who is at least 16 years old and is not disqualified from acting as a director can become a director of an Ltd company. They do not have to live in the United Kingdom.

Limited company - the director’s responsibilities

• Running the company in line with the rules set out in the articles of association,

• Keeping company records, including financial and accounting records,

• Filing tax returns and paying Corporation Tax,

• Registering the company as an employer in order to pay salaries (to the director and employees).

• Paying the Income Tax and National Insurance contributions due on the salaries paid.

What are the advantages of setting up an Ltd company?

A clear advantage of the Ltd company is the simplicity of its operations - the lack of unnecessary bureaucracy saves a lot of time and money. As the company’s shareholder and director, we can set our own salary, and also take payment in the form of dividends. It is worth remembering, however, that an Ltd company cannot rent property in Poland or have an establishment there without having to pay taxes in Poland.

Self-employed or Ltd company: Which pays off more?

An Ltd company differs from being self-employed above all in that it exists as a separate legal person, which is why its finances are a matter entirely separate from our personal ones - which in some respects can be inconvenient, but at the same time allows us to avoid liability for any debts of the company. Which option is better depends on the individual situation of the entrepreneur, their expectations and the type of business.

Need help with taxes in the UK?

At PolAccount we have many years of experience with taxes and advising businesses in the UK. Not sure how to file your Ltd company’s taxes? Wondering whether it’s worth switching from self-employed to an Ltd company? Need help registering your business? Our experts will help you with all of these matters! We encourage you to get in touch and discuss your situation with a specialist.