Maybe you’re new to contracting, maybe you’ve been working as a sole-trader or using an umbrella company; whatever your situation, going limited can seem like a daunting step. There’s a lot of conflicting information online, much of it concerned with whether contractors should incorporate or not, and the issue can appear to be more complex than it really is. Most of the issues can be seen as positive or negative, depending on your particular circumstances. Here we’ll deal with the most common ones, and explain how they might relate to your situation.
The cost and time taken to set up and close down a limited company
The fees for incorporation and closure will vary depending on your accountant, but they’ll usually be modest enough to make little difference if you see contracting as a long-term career. However, it won’t be worth your while to set up a limited company for a short period and then close it down. For this reason, we wouldn’t recommend going limited if you’re contracting as a temporary stop-gap between permanent jobs.
The responsibilities of being a company director
Company directors have a number of legal responsibilities. This is often presented as a terrible burden to be avoided by all but the most intrepid and committed of contractors. In reality, there’s no need to worry; the help of a good contractor accountant is all you need. In fact, many contractors actively enjoy the control their limited company gives them over their finances and career; it’s just a matter of getting the right help and advice.
The tax advantages of limited companies
This is often given as the main reason for incorporation, though in reality few contractors state it as their primary motivation. Even so, there is no doubt that trading through a limited company is the most tax efficient way to work. The advantage is more pronounced for higher earners, so those who work on low-paid contracts might see other factors as more important.
The additional administrative burden
Once again this is often overstated as a reason to avoid the limited company route, but it does need to be considered. As a general rule, expect to complete ten to twenty minutes of admin work a week, depending on the particular needs of your business. Some contractors work under considerable pressure and even this small additional burden can add to their stress levels. However, if this applies to you we’d advise taking a look at your work/life balance. It’s likely you’re already working under an unhealthy level of stress. Trading through your own limited company may actually help you take control in the longer term.
The flexibility and control of being your own boss
When we ask contractors what they love about contracting, this is always at the top of the list. While it’s true that contracting offers some degree of control, even if you choose another option, trading through your own limited company gives you the most opportunity to plan your finances and take control of your working life. On balance, if you expect to be contracting in the long term and you have access to a good contractor accountant, trading through your own limited company is usually the best way to work.
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