Contracting Through a Limited Company

In a Nutshell

Administration

In a Sentence

Contracting through your own limited company can be financially beneficial, though setting yourself up requires a degree of administration & paperwork and there are no short-cuts.

Before you can start contracting through your limited company you need to set one up in the first place! There is a defined list of tasks you need to go through.

These set-up steps can be done for you by a specialist contractor accountant, which is standard industry practise. And don't worry, ‘specialist' doesn't carry a hefty premium price - good old market competition means prices are as competitive as ever.

Set-up your Limited Company

It's pretty straightforward to set-up a limited company directly from Companies House. The cost is just a few pounds and this part of the process involves completing an online form.

The alternative is to use an agent who will do the setting-up and form filling on your behalf. There is an additional cost for this, but money well spent if you don't have the time yourself.

Business Bank Account

When your limited company has been formed you can go ahead and open a business bank account. You'll benefit by setting up a deposit account at the same time as you open a current account.

Use the deposit account to hold your future tax bills. That way you won't be tempted to spend more than you really have, and reduce the worry tax bills are usually associated with.

Contractor Accountant Agent

Having chosen a contractor accountant to look after your limited company financial affairs you need to authorise them to carry out the work on your behalf. Another form to complete (64-8) and send to HMRC.

While you're at it, consider whether you want them to handle your own personal tax affairs. It makes sense to have everything in one place - if so, complete two of these forms.

Flat Rate VAT

Regardless of your limited company turnover, you should register for the Flat Rate VAT scheme. Being VAT registered adds an air of professionalism and you will be able to earn extra income through the difference in VAT rates.

The Flat Rate VAT is only open to those companies whose annual turnover is less than £150,000. If you expect to earn more than this you will just have to register for standard VAT.

Limited Company Corporation Tax

HMRC will automatically send out an information pack to all new companies. The CT41G form needs to be completed and returned to HMRC.

This form is not complicated and requires a few basic details of your company.

Limited Company Payroll

In order to pay yourself as a director, as well as any other employees you may have, your limited company needs to register with HMRC as an employer. HMRC will then send you a New Employer Pack.

Subject to the advice you receive from your contractor accountant you will probably have quite low PAYE and National Insurance Contributions tax to pay. If so, only quarterly payments are necessary.

That's it. Your limited company is ready to go.