Advantages and Disadvantages of a Limited Company

Is going limited as a contractor a popular option? Well . . . SJD Accountancy has 14,000 contractor clients (as of 2014), all of whom took the plunge in setting up their own Limited Company with less than a handful ever going back to an Umbrella Company. At the start of 2010 we saw an increase of 70% in the number of contractors choosing to form a Limited Company and according to a 2011 Recruitment and Employment Confederation (REC)/KPMG Report on Jobs, contractor vacancies are at their highest level for 19 months.

If you are considering the Limited Company option, read our guide below to understand the advantages and disadvantages of going Limited, the responsibilities that come with company ownership and the administration duties it will likely require. 

Setting up your own Limited Company

This couldn’t be simpler, if you started now you could be finished forming your own Limited Company in five minutes providing that is, you know your name, where you live, when you were born and the name you would like for your company. Companies House will then usually set up your company within three hours. The government has really done a wonderful job in making it as easy as possible for people to open their own Limited Company, the last thing they want to do is put barriers in the way of any new business growth. Most clients tell us they really can’t believe just how quick and easy the process was.

It just takes three easy steps...

1. Choose a company name - Choosing a company name can be a challenge, and sometimes over thinking what name you should use can become frustrating. Our short guide to Choosing a Limited Company name offers helpful hints and tips on choosing the right name to suit your business. You can then make sure that your company name is available by using our free company name checker, it’s that easy.

2. Form your Limited Company - This will take five minutes and your company should be set up within three hours. Forming your Limited Company costs £125 plus VAT on our website, which is one of the lowest fully inclusive prices available. This includes: Help organising your Company Bank Account, VAT and PAYE registration, advice on the optimum share structure of your company and complete company formation service with all legal requirements so that you can start trading as a limited company. You can of course find cheaper prices on the Internet but they rarely include everything you need, such as VAT and PAYE registration, each of which can cost as much as £75 - £100 plus VAT from other accountants. Plus, cheap online formations often don't provide any telephone support.   

3. And finally, appoint an Accountant – Some contractors starting out may think, do I need an accountant or can I do my accounts myself? Of course you can do your accounts yourself...if you’re an accountant or some kind of math’s whizz that also happens to understand the intricacies of HMRC and its multitude of forms. However using an accountant will save you time, money and the stress of worrying about your taxes. You have enough on your plate and the last thing you need to worry about is missing a tax deadline - which could result in a fine if not sent in on time.

Deciding on the right accountant can be a difficult decision, so make sure you choose the right accountant that is perfect for you. Visit our what will an accountant do for me page, for a full comprehensive list on what an accountant should do for you. As a client of SJD Accountancy, all your company needs and personal tax affairs will be covered by our complete business package for a fee of just £110 plus VAT per month. This includes:

  • Year-end accounts*
  • Corporation tax
  • Payroll bureau
  • Dividend administration
  • Dealing with HM Revenue and Customs and Companies House
  • Quarterly VAT Calculations 
  • Support with Annual Returns
  • Personal Taxation
  • Access to your own dedicated accountant* for all help and advice
  • Free bookkeeping software

For further advice freephone our SJD New Enquiries Helpdesk on 0500 152500 / 01442 275789, book a one to one meeting or email your enquiry to nikki.hanlon@sjdaccountancy.com.

Advantages of a Limited company

  • Higher take home pay – You'll typically take home around 75% - 80% of your contract by working through your own limited company, you can take home as much as £15,000 per year more on a £350 daily rate compared with using an Umbrella Company.  
  • Claim on a wider range of expenses - Anything that is solely classed as a business cost can be claimed back on expenses. Trading through a Limited company means you can claim on a wider range of expenses such as accountancy fees, equipment, software, phones, travel, Internet and much more. Read our Contractors Guide to Expenses for more information.
  • Entitled to the Flat Rate VAT scheme - The Flat Rate VAT scheme can generate thousands of pounds of extra profit a year, with most contractors choosing to apply for this VAT scheme. Visit the following page to read more about the Flat Rate VAT Scheme.
  • Personal assets are covered - As a non-limited business, personal assets can be at risk if the business fails, but this is not the case for a limited company. As the shareholder you can not be held personally liable for the debts of a limited company, meaning your personal assets are not at risk.
  • Complete Control of your Business - You keep complete control of your financial affairs meaning you do not have to risk your money with any third party administrator or umbrella company.
  • Ease of use - Running your own business isn't difficult; submit spreadsheets to your accountant - just like umbrella time-sheets and expenses. Working through your own limited company does require a certain level of commitment but typically most contractors tell us they spend around 15 – 20 minutes per month managing their company.
  • Greater opportunity for tax planning than PAYE Umbrella – It goes without saying that working through your own limited company is more financially rewarding, which is only fair bearing in mind the extra responsibilities and loss of full time employment benefit.
  • Company given more credibility - Operating as a limited company often gives suppliers and customers a sense of confidence in a business and quite often other companies prefer not to deal with non-limited businesses.
  • Protection of your company name...even if you are not contracting. Once your proposed company name is registered as a limited company, the name is protected by law and no one else is allowed to use it, waiting to register your company could mean you lose the name you had initially wished to trade under.
  • Accountancy fees are often less than Umbrella Company fees – It seems strange but it’s true, many accountants charge less than umbrella companies, indeed SJD Accountancy offer one of the lowest all inclusive fixed fee accountancy services in the UK at just £110 plus VAT per month, visit the following page for more information on Why clients choose SJD.  

Disadvantages of a Limited company

  • A certain amount of paperwork involved – As mentioned above, there is about 15-20 minutes of administration work required per month, not much more than that of an Umbrella Company.
  • Accounts need to be filed every year - You have to file your accounts at Companies House each year, which will be on public record however your accountant will help with this. You will also have to file accounts, company tax and corporation tax calculations with HM Revenue and Customs every year, but again your accountant will help with this.
  • Costly if contracting for a short period of time - Can be costly if you have a short term contract (anything less than a couple of months but it does depend on your daily contract amount) then decide to go back to permanent employment as you will still be required to submit end of year accounts.
  • Not ideal for contracts less than £25,000 per year - This is only a general rule, and in some circumstances, depending on the contract, it may be more beneficial trading through a Limited Company. We would recommend contacting an accountant and asking them for their advice. For further advice freephone our SJD's New Enquiries Helpdesk on 0500 152500 / 01442 275789, book a free one to one meeting or email your enquiry to nikki.hanlon@sjdaccountancy.com

You might also find our new How to become a contractor guide - illustrated infographic useful.

If you are still unsure whether contracting through a Limited Company is the best solution for you, and may even require some information on possibly using an Umbrella Company, visit our Limited V’s Umbrella page.

Alternatively if you have any further questions in regards to Contracting contact a member of our New Enquiries Helpdesk on 0500 152500 / 01442 275789 or email nikki.hanlon@sjdaccountancy.com

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SJD Accountancy

SJD Accountancy are the UK's largest specialist provider of fixed fee, Limited company accountancy services to contractors; we've been acting for contractors across the UK since 1992 and have more than 14,000 clients.

We are the only national specialist firm of contractor accountants with offices nationwide. SJD Accountancy also have more qualified staff than any other firm in our market with qualifications from the following major tax and accountancy bodies - ATII, ATT, AAT, ACCA, CA, ACA, FCCA, ACMA.

  • Unlimited face to face meetings. This is another unique service, only SJD Accountancy offers unlimited face to face meetings across the UK - tax is complicated and sometimes only a meeting will do.
  • UK's Largest contractor accountants with more qualified staff. No call centres, no outsourcing, no automated call handling. Simply telephone, email or meet your own dedicated accountant* face to face.
  • Money back service guarantee. All your telephone calls and emails will be answered the same day or we will make a full refund of that months fee.
  • Outstanding reputation. We have won more awards for customer service and accountancy excellence than any other firm in our market, including: Best Accountant for Contractors, Accountant of the Year and Best Professional Service Team to name just a few.
  • All inclusive low cost fixed fee accountancy package which includes completion of accounts*, payroll bureau, dividends and corporation tax computations, personal taxation, free bookkeeping software, your own dedicated accountant* and all company returns for a fixed fee of £110 plus VAT per month.

If you have any questions about contracting or would like any further advice please call our new client services helpdesk on Freephone 0500 152500 / 01442 275789 or email: lisa.wood@sjdaccountancy.com.

Appoint SJD Accountancy and never worry about your tax or accountancy affairs again.

You may also find the following pages, guides and case studies useful:

*If you would like us to complete your company year end accounts we simply ask that you have been a client of SJD for one year or have made 12 monthly payments. All accountants are part or fully qualified.