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Operating through a limited company is the most tax efficient payroll option for contractors and freelancers who are operating outside IR35. Many contractors choose this option in order to legally maximise their take home pay – compared to working through a PAYE umbrella company.

There are many other benefits to working through a limited company – if your working circumstances permit. Continue reading to discover how it could benefit you.

Limited company benefits

Contracting through a limited company offers more financial security than a sole trader and offers a higher take home pay than working through an umbrella company. Below are some other benefits of setting up your own limited company:

  • Option to claim legitimate business expenses, and reclaim certain VAT costs
  • Limited personal liability
  • Greater control over your finances and different options for paying yourself
  • Better opportunities for lending and investments
  • Tax efficiency and different tax planning options
  • Protection for your business – once your company is registered no one else can take that name
  • Ability to save tax through limited company pension contributions

Should I set up my own limited company?

Becoming the director of your own limited company may be the best option for you if:

  • You are contracting for 3 months or more and want to continue contract work in the long-term
  • You are earning more than £15 per hour
  • You are happy to do the administrative tasks associated with starting a limited company
  • You want more control over your finances and tax planning
  • Your future contracts are likely to be outside IR35

The downside of operating through a limited company

Whilst the benefits of having your own limited company may outweigh the cons, you should still be aware of the following:

  • Setting up your own limited company can be costly
  • Your business will be liable for Corporation Tax
  • You will have ongoing business administration which you will need to keep on top of
  • The business must publish its accounts to Companies House and all annual financial reports and accounts will be visible to the public to an extent

Manage your limited company with Bluebird Accountancy

Bluebird Accountancy gives you access to FreeAgent software which allows you to run and manage your accounts wherever you are. Bluebird Accountancy’s online package is the perfect accountancy option for you if you are an experienced contractor and are happy to manage some of the administration yourself.

For more information give the team a call on 0808 301 2389 or visit the website to find out more.

Do you know how much you could be taking home if you were to sign up to one of our modern, online umbrella packages?

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