Limited Company status for Contractors
So, what is a Limited Company?
We at NoPalaver Accountants can explain what the upsides and what the downsides are for you, as a contractor, of working through a Limited company. The vast majority of professional contractors and freelancers work through their own Limited Company. If you don't already have a Limited Company, the quickest and easiest way to set one up is to use NoPalaver Accountants who will purchase an "off the shelf" company for you.
A limited company must have at least one director and a registered office and must have Limited or Ltd after its name. A limited company is a distinct legal entity in its own right. You are not the same as the "company"; the law sees the limited company as a separate "person". It has rights and responsibilities and can own property or equipment. The company must have a business bank account.
Your company is a separate legal entity, which makes it liable only for debts it incurs. Your personal assets, such as your home, are protected. It can help credibility with clients and suppliers and financiers.
If you secure work via agencies, they don't have to deduct tax at source. Instead they can pay you gross, which is more tax efficient. Business expenses and losses can be off-set against tax.
You can control how you combine salary and dividends to pay yourself. In many cases a limited company can be the most tax efficient route available.
You have legal responsibilities as the director of a company.
There is more admin and a marginally higher cost in running the company due to obligations such as submitting company accounts.
You can still be 'deemed employed' if your relationship with your client resembles employer/employee, but your company will suffer the financial consequences by having to pay employed levels of tax and NIC on any fees paid by your client to your company. This is known as being IR35 caught, and HMRC can seek to recover tax going back several years.
Arriving at a verdict
How long are you intending to freelance or contract for? If it's just a few months, it's not worth setting up a limited company and other options are available through The NoPalaver Group, but if you intend to work for yourself for the foreseeable future, go for it!
NoPalaver Accountants can handle all the set-up functions, provide ongoing admin and company accounts plus expert and qualified advice is always on hand.
Make sure you understand the issue of employment status and how to avoid being IR35 caught by using proper contracts and working practices, again, NoPalaver Accountants will be able to explain or clarify this "current" legislation and what it means to you personally. In short, as long as you can set up proper business to business relationships with your clients, you should have no problems with IR35, and no reason not to set up a limited company.
Please contact us to speak to us straight away or request a callback.