Going from Self-Employed to a Limited Company Contractor

Self-employed to limited company contractor

Being self-employed comes with numerous benefits – you have a mixture of financial rewards, more flexibility and freedom as well as the opportunity to gain more skills and experience along the way.

By becoming a limited company contractor, there’s even more to take advantage of:

• Your business is seen as a completely separate entity to you with its own identity and bank account. When you’re self-employed this isn’t the case at all, meaning you’re personally liable for any losses incurred – if your business were to face any genuine financial difficulty, you wouldn’t be at risk of losing your personal possessions and assets.
• You’ll have more tax benefits – it’s the most tax efficient method of contracting and you can expect to generally take home around 75-80% of your earnings.
• You can claim back on a much wider range of expenses. Take a look at our Limited Company Expenses Guide for more details on this.
• You will have complete control over the direction of your business and career.

Of course, running your own limited company isn’t for everyone, you also need to consider whether or not you’re willing to take on the additional responsibilities compared to other self-employed routes, such as:

• Following the company’s rules, as is shown in its ‘memorandum of association’ (a legal statement signed by all initial shareholders or guarantors agreeing to form the company) and ‘articles of association’ (written rules about running the company agreed by the shareholders or guarantors, directors and the company secretary).
• Keeping company records, including accounts and details of shareholders/directors/company secretaries etc
• Reporting any changes, such as a change of business address or if you’ve appointed an accountant for example.
• Filing accounts with Companies House and complete a self-assessment tax return.
• Paying Corporation Tax.

How to set up a limited company

If you’ve decided to set up your own limited company, the first thing you’ll need to do is inform HMRC that you’ve changed your self-employed status to a limited company.

After that, the next steps are relatively easy:

• Pick a company name – you need to check that the name isn’t already taken, isn’t offensive and it must end in either ‘Limited’ or ‘Ltd’.
• Assign company roles – you’ll need at least one director and it’s up to you whether or not you appoint a company secretary.
• Choose shareholders – there’s no maximum number of shareholders you have to have, but there needs to be at least one (who can also be a director).
• Register your company – this needs to be completed through Companies House and you’ll need to input information such as the company’s name and address, and the names and addresses of directors and shareholders.

For more detailed information on this, take a look at our How to Set Up a Limited Company.

If you’d like to sign up or need any further information, please give us a call on 01442 795 100 or you can email lauren.monks@dolanaccountancy.com. There’s also the option to contact us via live chat.