Why do interim managers need a limited company?
Having your own limited company can offer you great financial advantages, and in practice, the majority of clients and interim providers now insist that candidates work through their own limited company.
Some of the main financial advantages are:
- You can devise your own tax-saving remuneration strategy. If you are working outside IR35, there would be opportunities for the payment of dividends and other financial products which could offer National Insurance and income tax advantages.
- You can register for the flat-rate VAT scheme, which allows you to retain some of the VAT that you charge your clients.
- You will be able to claim back business expenses from your company, including accounting fees, office equipment and travel costs to your place of work.
Interim providers and clients will insist on a limited company for the following reasons:
- To avoid employment agency legislation including possible PAYE complications
- Your clients avoid the legal burden of employing a permanent member of staff (minimum wage, redundancy, SSP, maternity leave etc)
- Your clients have no hidden employment costs (pensions, holiday pay and other long-term overheads)
- Your clients have no responsibility to operate PAYE on your consultancy fees. This is extremely important, since if you are a sole trader, the Inspector of Taxes could dispute your status and, in certain circumstances, look to your client for income tax and National Insurance on your fees, long after employment has ceased
- Being employed by your own company is indisputable proof that you are not employed by your client (although not for IR35 purposes)
As well as the reasons above, having your own limited company looks professional, and gives you a platform from which to easily market your services.
One of the perceived negatives of running your own limited company is that you become both employer and employee, and as a result will have to bear the employer's responsibility for National Insurance contributions. However, you can work around this by building this amount into your daily rate.