What is a Limited Company?
It’s a common enough question, but what is a Limited Company and what does it mean to somebody looking to set up a new company or perform services as a contractor?
A limited company is a company that has its own legal entity and is therefore treated as a separate tax-payer. This means that the company’s finances are separate from the personal finances of the owners (shareholders) who have ‘limited liability’ – in other words, they are only liable for the amount they have invested in the company and are not held responsible for the company debts incurred in the ordinary course of business. A Limited Company can be large with multiple employees or set up for just one individual as the sole director of the company.
This structure is particularly relevant for contractors as it is the most tax efficient method to maximise your take-home pay. Your income will be channelled through your limited company and paid out to you and any other shareholders in the company in the form of a combination of salary and dividends. This can result in significant tax savings, as dividends are treated differently to salaries in terms of tax. The tax advantages are however dependant on whether you fall within the IR35 rules.
The Limited Company’s contract can either be with the end client or an agency and there are a number of tax free expenses that can be claimed through the company, such as: travel, business telephone, hardware and software, professional subscriptions, training, accountancy fees and other business costs.
Take home contract earnings
On average, working through a Limited Company can result in you taking home 75 to 80% of your total contract earnings.
There are however a number of ongoing administrative burdens and legal requirements associated with running a Limited Company, such as invoicing your clients and managing the monthly payroll in addition to the various annual returns. For this reason, the majority of contractors opt to outsource this to a qualified accountant.
We can assist you with the initial set-up and ongoing management of your Limited Company for a competitive set monthly fee, with no hidden charges.
Please contact us today for a complimentary no obligation meeting to allow us to maximise your tax savings and create the right structure to suit your individual circumstances.