How Do I Contract Through a Limited Company

In a Nutshell

Straightforward, with a bit of help

In a Sentence

There's a few forms to complete but nothing too difficult and normally only takes a few minutes online. There are two types of limited company

Private Limited Company (LTD): this is the most common type of limited company used by contractors. There must by one Director, optional is a Company Secretary. You cannot offer shares to the general public.

Public Limited Companies (PLC): There must be a minimum of two Directors. In order to raise money shares can be issued to the general public (issuing a minimum value of £50,000).

Assuming you opt for a Private Limited Company, this is how you go about contracting. First of all, you will have to;

1. Setup a private limited company
2. Open a business bank account in the name of your private limited company
3. Buy insurance(s) cover (dependent on the terms of your contract).

Your limited company accountant will help you with all of this administration setup.

Director & Responsibility

You will become a director of your private limited company. A private limited company only needs one director. As a director you will control invoicing, the company's bank account and figure out how much to pay yourself.

Directors have legal responsibility on the correct running of the private limited company. Even though you will appoint an accountant to help you out, the responsibility for compliance will still be with you.

Payment & Contracts

What you pay yourself will be made up of two elements: a salary and dividends. Both elements will depend on what gross income you are earning.

Your private limited company will enter into a contract with your recruitment agency or, sometimes, the end-client. Trading via your private limited company means you can claim tax free business expenses, such as:

1. Travel & subsistence
2. Hardware & software
3. Training
4. Subscriptions to appropriate publications
5. Business telephone costs
6. Accountancy fees
7. Other direct business costs that are paid for out of your private limited company's bank account.

How Much

The industry average price for an accountant specialising in the contractor market is around £100 per month.

Your contractor accountant will expect you to enter into a 12 month engagement that coincides with the trading year of your private limited company. You should be able to take home roughly 80% of your gross income.