If you’re an experienced, high level IT Contractor working further to a contract outside the Scope of IR35 you may find a Contractor Limited Company a suitable way to increase your net take home pay!
- A Contractor Limited Company (also known as a Personal Service Company or One Man Limited Company) may allow you to;
- Save large amounts of National Insurance (in particular Employers National Insurance at 13.8% uncapped when compared to a straight payroll solution), AND
- Claim greater business expenses than an Umbrella Company (you have total responsibility so the choice of which expenses to claim is yours), AND
- Avoid tax pitfalls if your income is close to either £100k pa or £150k pa. This occurs as the corporation tax paid by the company reduces your taxable personal income.
Update: The 2012 budget announced a review of the treatment of personal service companies, changes are expected in the 2013 budget. At a minimum we expect these changes will deny tax/NI benefits where a limited company is used as a payment vehicle by board-level individuals. One of the things putting this item on the agenda was public outrage at the news that the Chief Executive of the Student Loans Company (base ‘salary’ £140k pa, possible £14k bonus, £28k pension contribution) was paid via a personal service company. It subsequently emerged that hundreds of others in Whitehall, local government, and the BBC, use such companies. IR35 rules have cut down on company use by low level staff; the new review will target top level staff. The exact proposal was that, subject to consultation the 2013 budget would involve ‘requiring office holders/controlling persons who are integral to the running of an organisation to have PAYE and NICs deducted at source by the organisation by which they are engaged’. It is assumed that the rules would not apply within the personal service company itself!
If you are interested in going into business with a Contractor Limited Company and you would like to discuss your options with an experienced advisor call Commonwealth Contractors now on 0330 390 9021 or Submit your Details and we will get right back to you!
Limited Company Guides
In this section of the website we have provided a number of guides to Contractor Limited Companies, including;
- Contractor Limited Company – VAT
- Contractor Limited Company – Corporation Tax
- Contractor Limited Company – Dividends
- Contractor Limited Company – Expenses
- Contractor Limited Company – Salaries
- IT Contracts – Inside & Outside IR35
- Company Formation
- Professional Insurance
- Timesheets, Invoices & Payments
- Section 660a
- Getting a Mortgage
- Managed Service Companies
If you would like to discuss an issue in greater detail please contact Commonwealth Contractors now on 0330 390 9021 or Submit your Details and we will get right back to you!
Advantages and Disadvantages
Contractor Limited Company Advantages;
- Maximise retention by saving Employers National Insurance @ 13.8%
- Claim greater expenses (if you are happy to take the risk!)
- Open your own Business (many Consultants have gone on to build larger businesses after opening a Contractor Limited Company)
- Gain complete freedom with regards income structuring (you make the choices, you take the risks)
Contractor Limited Company Disadvantages;
- You and you alone are entirely responsible for the company (if at an HMRC audit problems arise it is entirely your responsibility)
- Greater Administration – Professional accountants can bear some on the admin requirement however you will find you still have more administrative work to do than you would with an umbrella structure
- Ongoing Costs – Even when you are out of contract you still run up costs as VAT returns, PAYE returns, and annual accounts/returns need to be prepared even if the content is ‘nothing happened’
- End of Year & End of Quarter Filing Requirements – At the end of the year you need to file company accounts, corporation tax returns, PAYE returns…. as well as your personal self assessment tax return
- Additional Costs – with an Umbrella Company Professional Insurance costs are included however with a Contractor Limited Company you need to arrange and pay for your own policies
- Immigration Complications – Contractor Limited Companies can make it more difficult to qualify for a visa extension (such as Tier 1 General).
- Dual Taxation – If you’re an Australian, and still tax resident in Australia (unless you are out of Australia for at least 2 years you probably are) you will need to pay additional tax on UK Dividend Income to the ATO. This is because while the UK-Australia double tax treaty means the ATO will give you credit for the personal income tax you have paid on UK earnings, the corporation tax paid by a UK company is not treated in the same way.
Find out More
To find out more about Commonwealth Contractors call now on 0330 390 9021 or Submit your Details and we will get right back to you!