Jun 24, 2019

If you’re new to contracting and want to explore your working options, we’re here to help you. Limited company contracting has many benefits but how do you know it’s the right choice for you? Here are some aspects you need to consider before deciding if contracting through a limited company is right for you.

Is a limited company an option for you?

This will depend upon your IR35 status and the other organisations in your supply chain.

As a general rule, if your role is subject to a significant level of control, it is more likely to be considered ‘inside IR35’. In addition, if you are unable to substitute yourself for another person, or if you and the end client have a relationship similar to that of employee/employer, you’re also likely to be ‘caught’ by IR35. Contractors who are subject to IR35 are unlikely to find that a limited company is a tax efficient way to work.

Generally speaking, the more you earn the more likely you are to have autonomy over how, when and where you do your work. If you have control over how you organise your working day, there’s a higher chance that your role would be deemed ‘outside IR35’ in which case using a limited company is likely to be a sensible option available to you.

What do you expect to earn?

Your hourly rate or the amount you charge your clients will affect whether limited company contracting is right for you.

Even if your role is not subject to IR35 but you are earning less than £150 a day, you may find that accountancy cost and effort involved in administering your limited company does not outweigh the tax advantage.

Advantages of limited company contracting

  • Tax efficiency
    You can usually work in a more tax efficient way as you can claim tax relief on allowable business expenses and pay yourself a mixture of salary and dividends.
  • More work opportunities
    As your contracting career becomes more established you may look to work with bigger companies. It’s common for larger organisations to have a policy to work only with limited companies. Limited company contractors are often thought to have a greater depth and breadth of experience.
  • Limited liability
    By operating as a limited company, your personal assets will normally be protected if someone takes action against you as a result of the work you have carried out. In contrast, a sole trader can become personally liable for any defects in the work they deliver.

Disadvantages of limited company contracting

  • Administrative burden
    When operating a limited company you’ll need to submit annual accounts to HMRC and an annual report to Companies House. This administrative burden isn’t for everyone.
  • Responsibility
    You will have legal duties as a Company Director. Not everyone wants this responsibility.

What is the alternative?

One of the most popular alternatives to limited company contracting is Umbrella contracting. This working option means that the Umbrella company acts as your employer whilst enabling you to maintain the flexibility of working as a contractor. This is a less tax efficient way to work than operating your own limited company, but you do get regular employment benefits such as holiday pay and sick pay, access to a company pension scheme and a record of continuous employment, among other things. Find out more about Umbrella working with Crest Plus.

What to do next?

Our team can talk you through the working options available to you and answer any additional questions you may have so that you can make the choice that’s right for you, based on your unique and specific circumstances. 01244 684700.

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