Contracting Through a Limited Company
There are a number of benefits of contracting through a limited company for contractors.
So, what are limited companies?
A limited company, or personal service company, can save contractors money by cutting down the tax they pay. A limited company will allow them to invoice their clients through it and allow their accountant to deduct epenses from their income before paying tax on it. It will allow contractors to take much of their income as dividends rather than as salary. It saves them money to take money out as dividends.
What are the main benefits of contracting through limited companies
There 6 main benefits of contracting through a limited company.
- They are simple to set up
- Contractors have higher take home pay
- Freelancers can claim on a higher range of expenses
- Contractors have greater control of their businesses
- It gives contractors more credibility
- There is an opportunity for tax planning for contractors
Why should contractors choose a limited company over an umbrella company
According to Companies House, limited companies are the most popular type of incorporated structure in the UK with circa 2,000 being formed daily and the preferred option for many contractors as 600 of those come from that sector, as opposed to an umbrella alternative. In the UK, this is because it can offer many benefits that are both financially and emotionally rewarding.
So, if you are a contractor, here are just 6 reasons why you should consider setting up a limited company.
Main Benefits of Contracting Through a Personal Service Company
1. Simple to set up
.Setting up a limited company is quick and easy to do. You can apply directly via Companies House, or through an intermediary like Tailored Services where set up is free of charge and can be completed on the same day. If you are new to contracting, or you would prefer professional help with the incorporation process, they can do all the leg work whilst you concentrate on your contractor workload.
2. Higher take home pay.
One of the main advantages to contracting through a limited company is that you can take home a higher percentage of your income or turnover, typically around 70 – 80 % . When you work so hard, it’s nice to know there are ways you can maximise the rewards. Operating under a limited company gives you the opportunity to keep that extra monthly income without being aggressive in your planning.
3. Claim on a wider range of expenses.
Another benefit of setting up a limited company is that you can
claim on a wider range of expenses. Again, this helps you to retain more of your income which you can use to treat yourself to a well-earned break. We can help you to determine the business expenses you’re allowed to claim so that you’re not paying more tax than necessary.
4. Control of your Business
Setting up a limited company means that you retain control over
your financial affairs and also the day-to-day running of your business, which appeals to many contractors or self-employed individuals. As the Director, you will have responsibility for running the company and this allows you to have complete oversight on your income and expenditure whilst considering all tax planning opportunities that are based on expanding on standard accounting principles.
5. Gives you more credibility.
Some companies prefer not to deal with non-limited business and so they avoid sole-traders or umbrella company formations. Often operating
as a limited company will give suppliers and customer more confidence in your personal and professional ability to carry out the work efficiently and with the likes of engaging with various recruitment agencies means you don’t have to be concerned over ‘Preferred Suppliers Lists’.
6. Opportunity for tax
planning.
Setting up a limited company provides many more opportunities
for tax planning, including the likes of pension planning, allowing you to be
proactive when it comes to how much tax to pay. We all want to reduce the amount of tax we pay on our hard-earned cash and the ability to manage our tax affairs remains a key reason for contracting through a limited
company.
Using Limited Companies Better Financially
Setting up a limited company is much more financially rewarding compared with working through an umbrella company. However, it requires a great deal of administration to meet regulatory requirements and a thorough understanding of how to attain all the financial advantages available.
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