Telephone: 01895 623800
Email: admin@ashburns.co.uk

Limited Company for contractors

Working as a self-employed professional provides you with a number of working options. The rapidly evolving employment market is increasingly becoming dependent on a large and fluid workforce, made up of ‘contractors’ who work on ‘period based contracts’ of three/six months, where the responsibility for the individual service provider, is transferred from the employer onto the contractor, compensated by a higher daily / hourly rate of pay for the service.
You can work within an ‘Umbrella company’ where the control over your self employment is transferred to your Umbrella company for a fee charged by the agency and its associated administrators to cover their time taken to administer your affairs within the company. Frequently however, as the name suggests, ‘Umbrella Companies’ are not operated properly and can lead to an HMRC enquiry much later on which may lead to unforeseen consequences from the use of these ‘Umbrella companies’.
Hence, it is advisable instead to have your own ‘Ltd’ company and put yourself in charge of its management and the responsibility of making sure that the company is properly operated remains entirely under your control at all times.
We strongly recommend you to operate within your own company and can assist you in ensuring that it is properly managed in your interest, however, the final decision of which option is suitable for you remains in your own hands entirely. We are happy to assist you in making this decision. Please call / email us for an initial free discussion with our team of qualified accountants who are happy to assist you.

Take home pay

A limited company of your own will enable you to retain around 60 – 70 % of your overall income whereas an umbrella company may leave you with some 55 – 65 % of your earnings depending on the efficacy of its administrators.

Hence, contractors and businesses operating through their own limited company have a better ability of having a higher share of their retained earnings from the services provided by themselves. Contractors with a IR35 friendly contract who operate under their own ability and supervision, may be able to enjoy the taxation benefits accorded to traditional SME businesses. IR 35 requires you to be genuinely self-employed and not in a disguised employment situation. An employer able to offer such a combination of an IR35 friendly contract, coupled with suitable working practices, would be the ‘ideal’ business relationship to seek within the marketplace.

Set up

Incorporating your limited company is a relatively simple process – you need to submit certain basic details to Companies House, such as the company’s name, its legal address, the company director’s details. Model articles are available free to use from Companies House. Whilst this process is not difficult, we strongly advise you, however, to seek our assistance in the formation of your company as this avoids a number of pitfalls which can easily trip up the uninitiated user.

Tax efficiency

There’s no doubt that operating as a limited company is a more tax efficient way of working available to ‘Contractors’ in the rapidly evolving employment market. By being the director and shareholder of your own company, you may be able to claim back a much wider range of expenses including the accountancy fees, any professional subscriptions, travelling expenses in certain situations, telephone and broadband charges as well as business software and even some office equipment – provided it is used solely for work purposes. There is also an option to register for VAT under the flat rate VAT scheme, which may enable you to retain some of the VAT you have charged to your clients.

Paperwork & Administration

A reputable firm of accountants like ours can ensure that the responsibility for the bureaucracy and administration of your company is shared between you and ourselves as your accountants.

The ultimate responsibility for ensuring that your filings are undertaken properly and promptly will remain with you since these can lead to heavy penalties when they are not dealt with in an efficient and timely manner by yourself. Nonetheless, limited company contractors enjoy total control alongside their responsibilities. You’re in charge of your own tax and financial affairs, which means that you have a degree of control to adapt and develop your contracting business as your circumstances change.