Contractor Limited Companies

If you’re a freelance contractor working on contracts outside IR35 you may find going into business with a Contractor Limited Company a great option. By using a Contractor Limited Company (sometimes also called a Personal Service Company) you may be able to save large amounts of National Insurance, claim greater business expenses and even save tax by using the VAT Flat Rate Scheme.

Of course going into business is not a step to be undertaken lightly as a Limited Company has its own separate legal existence and runs up costs even when no activity is going through it. For example VAT returns need to be completed every quarter (even where no VAT is due), PAYE payments made to the HM Revenue and Customs and end of year accounts and returns filed. A Limited Company should not be set up by those with a total aversion to paperwork as running the business involves a lot of administration, not all of which can be outsourced!

If going into business with a Contractor Limited Company interests you or you would like to find out more about Umbrella Companies or Limited Companies call Commonwealth Contractors now on 0800 294 4388 or Submit your details and we will get right back to you!

Limited Company or Umbrella Company?

If you work as a freelance contractor you have two real options. You can either use an Umbrella Company or go into business with your own Contractor Limited Company. For many freelance contractors the choice of solution depends upon:

1. Whether or not you are working on contracts 100% outside IR35
2. The level of responsibility and administration you are prepared to take on
3. Your long term contracting intentions

It seldom makes sense to even consider a limited company if you’re working on contracts deemed Inside IR35. Any contract income generated by the business further to work Inside IR35 would have to be paid out as PAYE Income rather than company dividends, meaning full tax and more importantly National Insurance deductions (both employer’s and employee’s) have to be paid.

If you’re working on contracts Inside IR35 you should consider an Umbrella Company Solution such as Expat Advantage or Payroll Umbrella, call 0800 294 4388 to find out more.

Aside from IR35 you also need to consider your long term contracting intentions and the level of responsibility you’re prepared to take on. Those contractors only undertaking only a handful of short term (sub 3 month) contracts should use an umbrella company and the same goes for those not prepared to take on responsibility for IR35, business expenses, company returns, annual accounts etc.

To find out about contracting solutions call Commonwealth Contractors now on 0800 294 4388

Contractor Limited Company Advantages

• You and you alone (where the only director) have sole responsibility for the limited company
• You have the freedom to decide which business expenses to claim
• By setting a low salary and taking dividends you can save large amounts of Class 1 National Insurance
• It may be possible to save tax by using the VAT Flat Rate Scheme

Contractor Limited Company Disadvantages

• You accept complete responsibility for the company if Investigated by the HM Revenue and Customs i.e. IR35, allowable business expenses etc. You could get a bill for disallowed expenses going back 6 years or more
• Even if your limited company stops trading (eg if you take a permanent job) up after a few months, you still have annual accounts and returns to take care of.
• There is a much greater degree of administration e.g. opening a limited company bank account, completing quarterly VAT returns, paying PAYE to the HMRC, completing annual returns, company accounts etc. If you value your free time, and don’t like paperwork, you may have a happier life by paying a bit more tax/NI, and saving yourself the hassle of having your own Limited Company!
• The limited company should have Professional Insurances in place, particularly Professional Indemnity and Public Liability Insurance. This adds to your overall costs
• If you’re looking to apply for, or extend, a Tier 1 (HSMP) visa counting dividend income as earnings is more difficult to prove than PAYE income (our OISC registered immigration partners can help with this)
• If you’re Australian, and not away from Australia for the long term, you could have an ATO liability on UK dividend Income (the double tax treaty between the UK and Australia means that UK PAYE income incurs no additional tax bill in Australia)

To find out more about going into business a Contractor Limited Company call Commonwealth Contractors now on 0800 294 4388 or submit your details and we will get right back to you.

Related Contractor Ltd Companies Pages:

• Contractor Limited Companies
• • Contractor Limited Companies
  • IR35 Assessment Tool
• Managed Service Companies
• • Managed Service Companies
  • MSC Involvement
• UK Dividends
• • Freelance Contractors and UK Dividends
  • Calculating and Paying Dividends
  • Dividend Tax
• Income Tax and National Insurance
• • Setting a Salary
  • Registering for PAYE
  • Income Tax and National Insurance
  • PAYE Payments and Returns
  • PAYE Investigation
• Business Expenses
• • Claiming Business Expenses
  • Contractor Expenses
  • Home Based Rules and Business Expenses
  • IR35 and 5% Expense Rule
  • Site Based Rules and Business Expenses
• VAT Guide
• • VAT Guide for Contractors
  • The VAT Flat Rate Scheme
• Timesheets, Invoices and Payments
• • Contractor Timesheets
  • Limited Company Invoices
  • Client and Agency Payments
• Section 660 and Income Shifting
• • Section 660a and Income Shifting
  • Section 660a Background
• Dealing with Contracts Inside and Outside IR35
• UK Corporation Tax
• Directors Duties and Responsibilities
• Opening a Limited Company Bank Account
• Loans and Mortgages
• Contractor Limited Companies and UK Immigration