Contracting as a Limited Company

It is critical to understand that the Company and its Director/Shareholder are two different legal entities.

The Corporate Structure

 

The benefits of trading with limited liability centre around improved marketability, risk management and a significantly favourable tax treatment. In exchange for these benefits, Company Law and Tax Law set a required minimum standard of trading behaviour, disclosure of accurately measured trading profits, and the acceptance of certain responsibilities. The Director/Shareholder of the Company must manage the affairs of the company. Professionals may advise a Director on any aspect of his responsibilities and may execute various administrative functions on his or her behalf - but they must not manage or control the company.

 

Advantages and Disadvantages:

 

 

For: Risk Management; Run your own business; Marketability: Disciplined Structure; Favourable Taxation: Scalability and Saleability.

 

Against: Additional Administration; More Tax Rules; Director’s Responsibilities; Taxation of Loans

 

 

Maintaining a Personal Service Company is the usual solution for those contractors or consultants, dedicated to self employment, who are engaged in high value assignments

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Instant comparison between the forms of business; see the effects of legitimate expense claims, consider Flat Rate VAT or just adjust hourly rates and time spent. Look for your personal jackpot.

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Of course in the end there is no substitute for targeted personal advice. Your individual circumstances matter. You need our expertise. Get a free initial consultation – probably the best freelance decision you will make!

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Instant Information

Our tax calculator is speedy. It is designed to give you results as you enter valid data – on the spot, in front of your eyes! We update regularly to make sure it always reflects changes in tax law and practice.

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Fixed Data

Assumptions

General                                                                                                                              

• The user is over 21 and subject to tax in the UK
• The user wishes to minimise their tax liability
• The user is subject to national insurance i.e.he/she is not over retirement age
• Only current tax rates and limits are applied
• No tax mitigation payments are made e.g. pension contributions
• Only 3 digit letter 'L' tax codes shown in the drop down list can be entered 
• The user does not have a turnover greater than £100,000 where fewer reliefs and or higher taxes may apply

Expenses

• All miles claimed as expenses are for business use using a personally owned car or van
• All other expenses claimed are wholly, necessarily and where appropriate exclusively for the benefit of the business

Foremans LLP Charges

• Foremans fees associated with Limited Company, Sole Trader or Umbrella are as per published rates
• Foremans current Service Costs are allowed for in all calculations.

Holiday Pay

• Holiday pay is accumulated week by week by Umbrella or Agency employer but paid out during the year

VAT

• Limited Company or Sole Trader will be VAT registered
• Limited Company or Sole Trader will take advantage of Flat rate VAT
• Flat rate applied includes the benefit of the additional 1% applicable to the first year of VAT registration

Limited Company Conditions

• One director / one shareholder in a Personal Service Company
• Director of Personal Service Company elects to vote for 100% dividend after salary, costs and expenses
• Director's salary is maximum salary to the primary threshold for NI
• The Limited Company is trading normally i.e it is not subject to IR35 and is not a Managed Service Company

NOTES

• The Current tax rates are taken from the Fixed Data Table
• The current Value Added Tax Rate is 20% and is applied to all invoices and expenses as appropriate
• The Director's Salary is fixed in relation to National Insurance thresholds. Higher Rate Taxpayers should consider the advantages and disadvantages of a larger annual salary or bonus
• Higher Rate Taxpayers may wish to consider the advantages and disadvantages of shared ownership of their business
• Users with a tax code other than three digits and letter "L" may telephone or email our Development Department to request a detailed calculation
• Generally the use of an Umbrella rather than an Agency payroll is only efficient if sufficient weekly expenses are allowable and claimed
• The expenses claimed under an Umbrella should not prevent the proper operation of National Minimum Wage