How do I become a limited company as a content creator?

For many people, creating content is an enjoyable hobby and nothing more, but for some, it has become a viable career path. As a freelance content creator starting to make an income, you must register as a business and pay tax. There are two main routes to setting up a company as a digital content creator.

Most UK content creators start as sole traders, a quick route to get a business off the ground. They are responsible for declaring their income and paying tax to HMRC. For growing businesses, there are definite advantages to setting up a limited company, such as tax savings and less personal risk.

In this blog, we'll explore the different company structures available to a self-employed content creator, look at the pros and cons and touch on the process of setting up as a limited company.

For business advice and accounting services, please contact Capture Accounting, specialist accountants for social influencers and digital content creators - we'll happily talk to you about whether having a limited company is better for you or not.

Can being a content creator be a business?

Absolutely! If your target audience or companies are willing to pay for your services through your digital platforms, for example, content creation, subscriptions, online courses or brand endorsements, then your hobby has become a business, my friend!

You will likely start small, so a sole trader route may be most appropriate. However, the content creation industry is very lucrative, and as a successful content creator, you could eventually earn more than six figures a year. If you aspire to that kind of income, it makes sense for you to create your own limited company when your profits reach a certain level.

What is the difference between being a sole trader and a limited company?

A sole trader and limited company are two of the three main self-employment business structures in the UK (the third being partnerships).

Both company structures have their own tax rates, rules and regulations. The key differences basically boil down to; how much tax you pay, your personal liability for any debts/legal action and the level of administration required.

What is a sole trader?

A sole trader (or sole proprietorship) is easy to set up and light on admin, making it a good choice for fledgling businesses. As the sole proprietor, you call the shots and have access to all of the profits.

However, it's important to understand that as a sole trader, you are your business from a legal standpoint. That means you bear all the financial risk if things go wrong, i.e. you must pay business debts back from your own pocket, and your home, car and possessions could be used to settle the debt.

As a sole trader, you are responsible for declaring your profits via a self-assessment tax return and paying Income Tax. Income tax is charged at a rate commensurate with earnings, which is 0% up to £12,570 (the personal tax-free allowance), 19-25% on earnings up to £50k and 40% up to £125k and 45% on anything above that amount.

What is a limited company?

A limited company structure provides business owners with a distinct legal identity, so their personal finances and possessions are safeguarded. Limited companies are subject to Corporation Tax on profits, with the current standard rate at 25%.

As a limited company director, you also have more flexibility in the way you pay yourself, meaning that there are more potential tax savings. On top of that, a limited company can be seen as more professional, giving you more sway with investors and potential brand partners.

The setup involves a lot more admin, and a limited company has more statutory obligations to fulfil, such as submitting annual accounts to Companies House.

But, despite the increased administrative burden, the benefits of limited liability, credibility and tax savings make limited companies attractive for business owners with long-term aspirations.

What are the benefits of setting up a limited company as content creators and social media influencers?

If your social media platforms are starting to take off and you are making serious money from your content, there are definite advantages to setting up as a limited company.

Lower tax bill

A limited company must pay tax at 25% of its earnings - a lot lower than the 40% Income Tax you'd pay as an individual when your earnings reach £50k per year. So as a limited company, you can retain a lot more of your profit.

Reduced personal risk

A limited company gives you protection (i.e. limited liability) if your company runs into financial or legal difficulty.

Flexible income

As a sole trader, you pay tax on all of your profits from content creation above your personal annual allowance. As a limited company, you can choose to pay yourself a smaller salary to reduce your tax bill, and the majority of your income can be taken as dividends from your net profit, which is tax-free up to a certain limit.

Greater opportunity

With company status, your business will gain more credibility, giving you the edge over other content creators when it comes to attracting advertisers and brand partners.

What are the steps to forming a limited company as a content creator?

You might have read online that it's easy to form a limited company, but you must get the right advice before you go ahead.

Although hiring an accountant to help set up your business might seem like another unwanted cost, it will save you money in the long term by getting it right the first time.

As your accountant, we can guide you through the process and advise on the following:

• Where will your company's registered office be? - Companies House require you to register a service address. Using your personal address is not recommended, as it will be an available public record for anyone to find.
• Will you have any other shareholders? - There are pros and cons of having other shareholders, such as a partner or spouse. You need to decide how many shareholders you want, if any, and if you want to create a separate class of shares. We can save you the headache and provide valuable advice, as well as help you navigate your new legal obligations.

When should I form a limited company as a content creator?

The best time to register as a limited company comes down to a matter of tax on earnings and risk exposure.

As mentioned above, as a self-employed sole trader earning above £50k per year, you move into the 40% higher rate tax bracket - ouch. Whereas, if your business was registered as a limited company, it would pay Corporation Tax instead, at a much more palatable rate of 25%.

If you are beginning to generate big profits, the risk also becomes greater. As a sole trader, you are not legally separable from your business. If the worst were to happen and you found yourself in debt, then you would be personally liable.

So, while you can choose to register as a limited company from day one, it's certainly worth considering when your numbers are heading towards the £50k mark, or around £4k per month.

Looking for accounting advice? Get in touch

If you are a content creator earning £4k a month, then call Capture Accounting to talk through your options - as a limited company is likely going to be more tax efficient for you. 

Book a call to arrange a zoom with us and see how you can save money.

Frequently asked questions about incorporating as a content creator

Can sole trader content creators claim expenses?

Yes, you can claim certain expenses as a content creator. It's wise to record expenses diligently and set up a separate business bank account to keep things on track.

There are strict rules on what is classed as 'allowable expenses', so it's good to get the advice of your accountant, as there are a few grey areas when it comes to influencer expenses.

See our blog What Expenses Can Social Media Influencers Claim? for more info.

Can I be a limited company by myself?

Yes, you can be the only shareholder and director in a company - no problem at all. But it may be beneficial to have other shareholders or to form a partnership, on which your accountant can advise.

Do I need an accountant to set up a limited company?

You don't need an architect to draw up plans for a house, but it's definitely worthwhile employing one! Professional accountants know the processes involved inside out and can help you avoid the pitfalls of setting up a company.

Do I need an accountant for a limited company?

There are more legal responsibilities and administration for a limited company than for a sole trader, and it is time-consuming. So it is worth investing in the services of a good accountant to make sure you remain compliant and avoid penalties.

Your accountant can help you with bookkeeping, expenses and your Corporation Tax Return to give you time to concentrate on content creation rather than spreadsheets!

In summary

As a general rule, successful content creators who earn consistent income from their social media pages and YouTube video content would be wise to consider establishing a limited company.

It's essential to get advice from an accountant like Capture before you proceed to get advice on your tax and legal obligations.