Read about the benefits of a limited company, and how you might experience a more rewarding contracting career by setting up your own limited company.
Setting up a contractor business by way of a limited company can seem complicated, except when you have a good contractor accountant on your side to support you each step of the way.
However, the benefits of being a contractor with a limited company far outweigh any additional setup processes or administrative responsibilities that you may experience.
Here are some benefits of being a contractor with a limited company:
1. You can be more tax efficient as a limited company Director
Probably the key benefit of a limited company is that they allow you to be more tax efficient. If you and your accountant work out a tax planning and dividend tax planning strategy that works best for you, your limited company can help you increase your take home pay to its highest potential. Many contractors with a limited company see take home pay of up to 80%, compared to the 65% – 70% often seen by umbrella company contractors.
2. You can claim a variety of expenses through a limited company
This benefit ties into the previous point; claiming expenses against your before-tax profit is part and parcel of a solid tax planning strategy. However, the benefit of a limited company is that you have more options for claiming expenses than if you were to work through an umbrella company. For example, 2016 government legislation made umbrella company contractors unable to claim Travel and Subsistence expenses. Contractors with their own limited companies who work outside IR35 are still able to claim this expense type.
Read more about claiming expenses through a limited company.
3. Limited companies are what they say on the tin
If you go the sole trader route and something goes wrong, you are personally financially liable for any losses and damages that your business faces. However, when you are a contractor with a limited company, you have more protection and are not held personally liable for financial losses. In many cases it’s still a good idea to take out business insurance for your limited company, however; read more about the types of business insurance recommended for contractors.
4. Having your own limited company looks professional
A limited company is a business, an entity through which you provide your services as a contractor. This looks more professional than moving from umbrella company to umbrella company. An agency or client will likely perceive a contractor with a proper company to be trustworthy and reliable, and this could help you win more contracts and even contract renewals.
5. You have more flexibility and control of your finances through a limited company
Another benefit of a limited company is the control you have over your company finances. You get to choose how much revenue you filter through the company as salary, how much you pay out as dividends, and how much you leave in the business bank account (following the advice of your accountant and leaving enough in your business bank account for Corporation Tax and VAT payments is recommended, however). You can also use the flexibility and control you have over your company finances to decrease your tax bill further and plan for your retirement at the same time. Read about how to save for your retirement through your limited company.
6. You always have a way to be paid
When you have are a contractor with a limited company, you don’t have to close it down and start up a new one for each contract you take on. This is unlike umbrella companies, where the occasional agency or client may prefer if you use a different umbrella company to the one you are already registered to.
Switching from umbrella company to umbrella company, no matter how easy the sign-up process is, could get irritating after a while. With a limited company the setup is already done and you can start a contract with no worry about how you’re going to be paid.
If you do stop contracting temporarily or switch back to permanent employment for a while, you also have the option to make your limited company dormant or to close it down (many accountants charge for closing down a company – we don’t).
Want to know more about the benefits of a limited company as a contractor payroll option? Contact us via 01707 871622, or request a callbak, and we will be happy to run through which payroll option might be best for you.
In the meantime, try our take home pay calculator to find out how much more you could take home through a limited company based on your weekly rate.