0345 557 1287
Office Hours: 9am to 5.30pm
0345 557 1287
Office Hours: 9am to 5.30pm

Why go Limited

Deciding to move from permanent employment and become freelancer or contractor as a career can be a great lifestyle choice. You have the freedom to choose where and when to work, what assignments to accept, and you don’t get bogged down in the 9 to 5. You may already be self-employed and doing your own book-keeping. There are however other ways of working that may be more beneficial.

Deciding to move from permanent employment and become freelancer or contractor as a career can be a great lifestyle choice. You have the freedom to choose where and when to work, what assignments to accept, and you don’t get bogged down in the 9 to 5. You may already be self-employed and doing your own book-keeping. There are however other ways of working that may be more beneficial.

Let’s look at why self-employment isn’t always the best way to trade:

Sole-trader

If you are working as a sole trader (in other words, self-employed) you’ll be paying tax and National Insurance on all of your profits for the year. A sole trader does not separate their business from their personal affairs, and is therefore personally liable for the success of the business or failure of their business.

Yes, the administration is simple – you advise HMRC of your profits on your self assessment tax return tax return and you then pay the tax due in two payment. If you don’t have any employees or are registered for VAT, that’s it.

However, and this is very important, if your business fails, if someone sues you or if you do not make sufficient provision for payment of your tax, the resulting liability will be personal and could have far reaching consequences. This is because your business affairs and your personal affairs are not separated.

Limited company

It is therefore important to separate these aspects of your life and often the best way to do this is to set up a Limited Company, oh which you will be the main director and employee. There are various tax advantages of working under the limited company which are summarized below, but the main advantage is that should the business fail for any reason, the personal liability is limited to the value of your shares in the company. In most cases this will be around £1.

Limited company taxation

The way a limited company is taxed is very different from the regime that sole traders are tax under. A director would normally take a minimal “salary” from the company, and the remaining income is drawn from the business in the form of dividends. It is possible to draw approximately £30,000 as dividends which will be taxed at 20% Corporation Tax. Alternatively you can leave the profits in the business as they are only taxed when they are withdrawn.

In real terms, if you are a contracor earning around £30,000 per year then you can save over £1,500 over the course of the year. And the more you earn, the better the tax savings.

Other advantages of Limited

Click on each of the below to find out more.

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Administration

There are important documents that need to be completed and submitted to the HMRC over the course of each year. There are also documents that must be submitted to Companies house

These are:

  • Financial accounts must be submitted to Companies House in a particular format – your accountant will prepare these with your input
  • Company tax return and accounts must to be submitted to HMRC on time – this is something your accountant will assist you with
  • An Annual Return needs to be filed with Companies House on time – your accountant will help you with this
  • You’ll need to register for PAYE if you are taking a salary from your business – part of the service provided by your accounant
  • If you are VAT registered you’ll need make sure your VAT returns are completed and submitted
  • Book keeping – accurate book keeping is essential. Many accountants will provide you with free software to do this

Why you need an accountant

It is really important to work with an accountant that is a specialist in providing services for contractors. The administration burden we talked about may seem overwhelming to begin with, but if you work with a contractor specialist, they will be able to help you out and allow you to run your business in the most efficient way.

We would expect that in most cases, an hour a week would be sufficient for you to cover off all of the paperwork required.

How incorporation operates

So, what is the process if you decide to set up a limited company?

  1. Appoint an accountant and tell them your aims and objectives
  2. Decide what your company will be called
  3. Your accountant will be able to check if the name is acceptable and has not been used already
  4. The company will be incorporated at Companies House
  5. You will need to open a business bank account
  6. You will be sent your Certificate of Incorporation and supporting documents
  7. GO AND WORK
  8. At the end of the week or month, invoice your client or agency
  9. You will receive payment into your business account
  10. Your accountant will advise you how to pay yourself

How to choose an accountant

We know that there are lots of accountants that you can choose from but there are a few questions you need to ask before you decide who to work with.

  • Are they contractor specialists?
  • Do they charge an all inclusive fee or do additional service come with additional costs?
  • Do they give you book keeping software to use free of charge?
  • Do you get unlimited access to a personal accountant or do they operate a call centre?

One Click Accountant can answer yes to all of the above questions.

Please call us on 01928 232155 or Email info@oneclick.group

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