What Are The Advantages To Contractors Of Working Under A Limited Company?

Hi may names Alex and I work for Danbro Accounting Solutions as part of the marketing Team

. In this article I will be writing a simplified explanation of why some contractors may choose to work under a limited company and also what the benefits of this are.

What is a Limited Company?

A limited Company is a privately held company where the shareholders own the business by acquiring a share of the company"s share capital. The shareholders then appoint directors to run the company on their behalf. To set up a Limited Company costs around 85 and usually takes only a few days.

As long as the contractors working practices are outside IR35, a Limited Company may be the best most tax efficient way for that person to operate. See my article IR35 for Dummies for more information on whether you fall inside our outside.

What are the benefits for contractors working under a Limited Company?

1.More tax efficient- This is the main advantage; contractors pay themselves a small minimum salary (minimising PAYE and NIC liabilities) and withdraw the remainder of their income as dividends. Dividends are a more tax efficient method of releasing funds out of their business; dividends can be tax free and are not subject to National Insurance Contributions.

2.Extra Flexibility- There is also extra flexibility with allowable expenses that can be claimed along with other tax efficient incentives which can equate to increases in their company profits.

3.Personal Liability- Your personal liability as a director is limited, as the name suggests, if things go wrong. However as a director, you are in complete control of all company affairs, both financial and administrative.

What are the disadvantages of working under a Limited Company?

1.More Responsibility- Being a Director of a Limited Company brings more responsibility for the contractor such as legal requirements, as well as additional administration such as annual accounts and tax returns. A professional accountancy practice such as Danbro can however take care of this and handle many of the issues contractors have operating their own Limited Company. Although as a director you are still ultimately responsible for ensuring your accounts are submitted on time, even if these tasks are carried out by an accountant.

2.Short Term Contracts- No Suitable for people who are planning to take on a short term contract.

For more information and a more detailed guide on this I would recommend you take a look at our Contracting Guide or ring Danbro on 0800 731 3178. As leading contractor accountants, we can provide you with all the advice you need to start working through your own Limited Company.

For further details, please contact Danbro: 01253 600141,

General Enquiries: 01253 600140,

London Office: 020 7836 8400 or email enquiries@danbro.co.uk

Umbrella Company

by: Alex Askew

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