What is a limited company and why might I need one?
What is a limited company?
- It is a separate legal entity which is quite unlike being self-employed
- It has directors and shareholders
- It has a registered office
- It has a registered accounting year end
- It has company documents
- Memorandum and Articles of Association
- Certificate of incorporation
- Share certificates
- Statutory books
It is extremely quick and easy to set up your limited company. Competex, a specialist accountant for interims and consultants, will be able to form your company within 24 hours.
Reasons for choosing a limited company
Most clients and interim providers will insist that you work through a limited company, unless you are working in the public sector, in which case you are recommended to work through an umbrella company .
Having your own limited company can also offer great financial advantages, such as:
- 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.
- In some cases, you would be able to 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 usually 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 is professional, allows you to create your own business identity, and gives you a platform from which to easily market your services.
One of the perceived downsides 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 (Employer’s NI). This needs to be considered when calculating your daily rate.
Next resource: Setting up your limited company