Limited companies for contractors

For many contractors, contracting via a limited company is one of the most tax-efficient ways to pay if you operate outside IR35. Whether you are just starting as a contractor or freelancer or have been contracting for a while, setting up your own limited company could be the most beneficial way to work.

There are several ways to start a limited company. However, choosing a specialist contractor accountant can remove some of the administrative burden and paperwork of operating a limited company.

Continue reading to discover what it means to have a limited company and why it could benefit you.

What is a limited company?

A limited company, or a Personal Service Company (PSC), is a form of business which is legally separate from its owners (typically shareholders) and those appointed to run it (directors). The same person can hold both roles. Its defining characteristic is that it has limited liability. In the UK, all limited companies must be incorporated at Companies House and given a unique registration number.

If you go down this route, you will operate through your own company and supply professional services to end clients, sometimes via an agency. A contractor working through a PSC can work in any role in any industry for outside IR35 contracts. Operating via a limited company is a very tax-efficient way to get paid as a contractor, as you can pay yourself with a combination of salary and dividends.

Benefits of a limited company

There are many benefits of operating via a limited company:

  • Limited companies are separate legal entities entirely independent of the directors and shareholders. If the business were to become bankrupt, you would only be liable for the value of your unpaid shares or personal guarantees.
  • Limited company directors can pay themselves with salary and dividends and legitimately minimise their tax liability.
  • You can claim various business expenses as long as they are incurred wholly and exclusively for the purpose of trade.
  • You can exercise different share classes, which can be helpful if you are interested in attracting investors or dividing the company’s ownership.

However, there are some disadvantages you should consider:

  • Registering your business with Companies House is a legal requirement; any information you must provide can be accessed and viewed by anyone as it is listed on Companies House.
  • As a limited company director, you must adhere to strict record-keeping, filing, and accounting requirements to comply with UK tax laws. This often means a lot of administration.
  • The legal set-up costs can be expensive, and if you choose to appoint an accountant, this will also be more expensive than using an umbrella company.

Appoint an accountant

As a limited company director, you are responsible for ensuring all company records are accurate and up-to-date, and you must ensure all accounts and tax returns are filed correctly and on time. Many contractors who are outside IR35 and operate through their own limited company will choose to appoint a dedicated contractor accountant to look after their accounts. A good contractor accountant will have in-depth knowledge of the contract market and can also offer proactive tax planning and advice tailored to your business and goals.

Looking for an accountant? Contact Churchill Knight & Associates Ltd today!

If you require the services of a professional accountant with FCSA accreditation, our sister company is the perfect fit. Founded in 1998, Churchill Knight & Associates specialises in multiple accountancy services, including contractor accountancy, CIS limited company accountancy, contractor accountancy, accountancy for landlords, and specialist services for landlords.

Please click on the button below to be taken to the contact page on the Churchill Knight & Associates Ltd website. Alternatively, please call 01707 871622 and ask our friendly team to discuss your requirements with you as part of a free, no-obligation consultation.

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