In today’s digital age, influencers have taken center stage in marketing. With opportunities spanning multiple platforms, from Instagram to YouTube, influencers now hold the power to turn their passion into profit. But beyond the glamour of brand deals and social media fame, there’s a smart financial decision every influencer should consider: forming a limited company. The financial perks of forming a limited company as influencer can significantly impact your earnings, tax obligations, and long-term financial security. In this blog, we’ll explore why this structure is ideal for influencers in the UK and how it can maximise your profits.
What is a Limited Company?
A limited company is a legal entity separate from its owners. Unlike a sole trader, where you and your business are considered one, a limited company separates your assets from the business. This structure offers several financial perks of forming a limited company as an influencer, including tax efficiency and limited liability.
Financial Perks of Forming a Limited Company as Influencer
1. Tax Efficiency:
A Major Advantage: One of the most significant financial perks of forming a limited company as influencer is the potential for tax savings. As a sole trader, all your profits are subject to Income Tax, which can range from 20% to 45% depending on your earnings. In contrast, a limited company is subject to Corporation Tax, which, as of 2024, stands at 25% for most businesses.
This lower tax rate alone can result in substantial savings for influencers with higher income levels. Furthermore, as a company director, you can pay yourself a combination of salary and dividends. Dividends are taxed at a lower rate than income, allowing you to minimise your tax burden while still drawing money from your business. For influencers earning a significant income, the financial perks of forming a limited company as an influencer cannot be overstated regarding tax efficiency.
2. Limited Liability: Protecting Your Personal Assets
As an influencer, you may face legal challenges, from contract disputes with brands to potential copyright infringement claims. One of the most essential financial perks of forming a limited company as influencer is the protection it offers to your personal assets. Since the company is a separate legal entity, your liability is limited to the amount you invest in the business.
If the company runs into financial difficulties or legal troubles, your personal savings, home, and other assets are protected. This peace of mind is invaluable, especially in a world where the online landscape can be unpredictable.
3. Professional Image and Credibility
Another less tangible but equally important benefit of forming a limited company is the boost in professionalism and credibility. When working with brands, a limited company structure can give you a more established and trustworthy image. Many brands and agencies prefer to work with influencers who operate through a limited company, as it signifies a more serious and organised approach to business. The financial perks of forming a limited company as influencer go beyond just savings; they can also open doors to bigger and better opportunities.
4. Claiming Business Expenses
One of the more immediate financial perks of forming a limited company as influencer is the ability to claim a wide range of business expenses, which helps reduce your taxable profit. As an influencer, your expenses can range from camera equipment and editing software to travel costs and office supplies. By forming a limited company, these legitimate business expenses can be deducted from your income, thereby lowering the amount of tax your company needs to pay.
Additionally, you can also claim for costs related to home office use, such as a portion of your rent, utilities, and even broadband. This makes the financial perks of forming a limited company as influencer even more appealing, as these savings can quickly add up.
5. Pension Contributions
Another key advantage of forming a limited company is the ability to make pension contributions through your company. As a sole trader, pension contributions must come from your personal income, but as a limited company, you can contribute to your pension as an employer. These contributions are considered a business expense and can reduce your Corporation Tax bill.
For influencers thinking about their long-term financial security, the financial perks of forming a limited company as influencer include the ability to build a pension pot more tax-efficiently, ensuring a comfortable future.
6. Flexibility in Income Distribution
Operating as a limited company gives you control over how and when you receive your income. Rather than being taxed immediately on your earnings, as you would as a sole trader, you can choose to leave profits in the company, draw them as dividends at a later date, or reinvest them into the business. This flexibility in income distribution is one of the primary financial perks of forming a limited company as influencer, especially when planning for future investments or growth opportunities.
7. Lower National Insurance Contributions
As a sole trader, you’re required to pay Class 2 and Class 4 National Insurance Contributions (NICs), which can be a significant cost. However, as a limited company director, you will likely pay less in NICs. By taking a low salary and paying the rest of your income through dividends, which are not subject to NICs, you can save a substantial amount over the course of the year. This is one of the financial perks of forming a limited company as an influencer that can have a direct impact on your take-home pay.
8. VAT Registration Benefits
If your influencer business is earning more than the VAT threshold (£85,000 as of 2024), you’ll be required to register for VAT. However, even if your earnings are below this threshold, voluntarily registering for VAT can be one of the financial perks of forming a limited company as influencer.
Once registered, you can reclaim VAT on business expenses, such as equipment and services you’ve purchased for your influencer activities. Moreover, being VAT-registered can enhance your credibility when dealing with larger brands and companies.
9. Access to Funding and Investment
Forming a limited company also opens up more opportunities for funding and investment. If you’re looking to expand your brand, hire staff, or collaborate on large projects, having a limited company structure can make it easier to secure loans, grants, or even investment from venture capitalists. This is another of the financial perk of forming a limited company as an influencer, as it allows you to scale your business more effectively.
10. Succession Planning and Selling Your Business
As an influencer, your brand is your business. But what happens if you want to step back from the day-to-day running of it or even sell your company? As a limited company, you have the option to sell your business as a going concern or bring in new directors to take over. The financial perks of forming a limited company as an influencer include the ability to plan for the future and create a legacy that can continue even when you decide to move on.
11. Staying Compliant with HMRC
Running a limited company does come with certain responsibilities, such as filing annual accounts and Corporation Tax returns with HMRC. However, the financial perks of forming a limited company as an influencer far outweigh these administrative tasks. With the help of an accountant or a good accounting software package, staying compliant is straightforward, and the benefits in terms of tax savings and asset protection make it well worth the effort.
Conclusion
For influencers, forming a limited company offers a host of financial benefits that can significantly enhance both your short-term earnings and long-term financial security. From tax efficiency to protecting your personal assets, the financial perks of forming a limited company as an nfluencer are numerous and compelling. By making the switch, you’ll not only save money but also project a more professional image to potential clients and brands, opening up even more opportunities in the fast-growing world of influencer marketing.
Disclaimer:
The blog is intended for informational purposes only and should not be construed as financial or legal advice. Always consult a qualified accountant or legal advisor to discuss your individual circumstances. HMRC rules and regulations can change, so it’s important to stay updated on the latest guidance.
