Advantages of working through a limited company
Higher take home pay
In general, those working in the self-employed sector are able to take home more pay compared to their permanent counterparts.
As a limited company contractor, there’s even more opportunity for this because you can invest more into your own skills and experience, which can result in being able to charge more for your specialised skillset. Plus, by being able to hire staff, you can take on more work without spreading yourself too thin and compromising on quality.
A wider range of business expenses
Contractors can claim back on expenses made for the running of their business – this helps to reduce your tax bill at the end of each year.
As a limited company contractor, you can claim back on a much wider range of expenses compared to other types of contractors, including business-related costs made before you even started trading.
Take a look at our Can I claim for pre-trading expenses? page for more information on this.
The Flat Rate VAT scheme
With the Flat Rate VAT scheme, you pay a fixed rate of VAT to HMRC and then you keep the difference between what you charge your clients and pay to HMRC.
Our Flat Rate VAT Scheme page will give you all the information you need on this.
More protection of personal assets
Unlike a sole trader, a limited company is seen as its own legal entity and so isn’t personally liable for any debts or losses made, which means that your personal assets are not at risk should your company suffer financial issues.
Complete control of your career
Running your own business means having complete control over your career and the direction you want to take it.
Can come across as being more professional
Having a limited company can give a business more credibility; potentially giving suppliers and customers more confidence in your company.
Disadvantages of working through a limited company
Paperwork
There are certainly more responsibilities that come with running your own business compared to other self-employment routes; one of which is the administrative side of things and ensuring you’re keeping track of your finances, as well as all your outgoings and expenses.
Filing annual accounts
Another additional responsibility is having to file your company accounts on an annual basis, which will include things like your self-assessment tax return and Corporation tax.
Not for lower income contracts
The limited company route is usually unsuitable for those who are earning less than £25,000 per year, or who are contracting more on a short-term basis – so, if this is you then you may need to reconsider your options. However, it’s worth talking to a professional account for more information.
Do I need an accountant?
If you need any help and advice when it comes to the paperwork and annual accounts side of running your own limited company, then it’s worth hiring an accountant.
An accountant can be an invaluable asset for any business – not only will they help you to keep on top of your financial liabilities and deadlines, but they’ll also be able to provide financial advice that could save you money in the long term.
Just be sure to choose an accountant who:
- Specialises in contractor tax
- Has qualifications
- Has a good reputation
- Offers a fixed monthly amount so you avoid any surprise bills!
If you already have an accountant and you’re not happy with them, take a look at our Is it Easy to Switch Accountants? page.
We hope you found this page helpful. If you have any further questions, our team of experts are available to answer any queries, so give us a call on 01442 795 100 or email jaime.thorpe@dolanaccountancy.com. Alternatively, contact us via live chat.
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