Quick Guide to Contractor Limited Company Pros and Cons

In a Nutshell

Good bits bad bits

In a Sentence

If only there was a way to trade as a contractor that was 100% positive - sadly, we're in the real world.

To get the maximum net income from your gross invoice value, trading through your own limited company is usually the best option.

Overview

Your own private limited company will enable you to develop tax planning strategies with your contractor accountant. On the other hand, running your own limited company means you will put yourself in the public domain (directors and shareholders have to be made available in the public domain).

A limited company is an autonomous legal entity in its own right. Any debts, problems or liabilities of the limited company remain within the limited company. Directors & shareholders are not in the firing line for any of these debts - houses, personal wealth and other assets are not at risk.

Potential Downsides

Though the contractor is not risking any personal loss if the company experiences troubled times, there are some areas that need careful consideration.

1. The limited company has to pay Corporation Tax on its profits. The balance left, which is called retained profit, can then be paid out to shareholders. However, the shareholder will have to pay tax on dividend pay-outs.
2. To set-up a limited company you need to follow predetermined procedures, as laid down by current legislation. There is a cost and you will have to fill in a number of forms - paperwork is not to everyone's taste.
3. On-going professional costs are unavoidable. You will have to engage a specialist contractor accountant. The services and costs vary quite a bit, as in any market place, and as a new contractor you will have a lot on your plate already.

Often the deciding factor on whether you opt to trade via a limited company, or chose the easier route of using the services of an umbrella company, comes down to your hourly/daily rate.

You should speak to a contractor accountant who will be able to run you through the options and give you their advice as to which option is best for you.