So, you’ve just won your first contract and your agency is asking you for the details of your UK limited company. What do you do; should you setting up a limited company? How do you know whether the limited liability company route is best for you, or would an alternative trading option be better? There are advantages and disadvantages to running UK companies. It is your personal circumstances, your career plans and aspirations and the nature of your contract that will determine the right trading option for you. You may also find that the decision is taken out of your hands, and that your agency or client insists that you set up a limited company before they will even do business with you.
UK limited company advantages
Company formation is incredibly fast and inexpensive. You can register a limited company with Companies House, the UK agency which regulates why start a company online every ltd company in England and Wales, in a matter of hours and for as little as a few tens of pounds if using an online service. As a contractor you can benefit from significant tax advantages by trading through a ltd business. Most contractors pay themselves a minimum salary and take the company profits as dividends, which can result in much higher take-home pay compared to being paid a salary from other trading options.
You can claim legitimate business expenses from your own ltd company, such as the costs of running a home office with all the computers, software and equipment that requires, plus travel expenses, subsistence and even training costs. And, as its name suggests, a limited liability company can protect your personal assets, such as your home, if the worst happened and a client decided to sue your company.
Disadvantages of a limited liability company
Even though your company is a separate legal entity from you personally, you still have duties, obligations and responsibilities as a shareholder and director. This would not apply were you to contract via an alternative trading option.
After you register a limited company, you must send annual accounts prepared by your accountant, annual returns and notifications of any changes to shareholdings and company officers, such as directors and company secretaries, to Companies House