Advantages and Disadvantages of a Limited Company

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Setting up a limited company has numerous benefits

Running a limited company is one of the most exciting career options, and our base of 15,000+ contractors would agree.

The advantages of a limited company structure are extensive, from being your own boss to receiving a higher take-home pay. There will always be a downside or two and being self-employed is no different. We run through the process of setting up a limited company, along with the pros and cons of going limited.

Setting up a limited company

The limited company formation process can be simplified into three steps: choosing a company name, forming the company and appointing an accountant.

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.

  • Choosing a company name
  • Form your limited company
  • And finally, appoint an accountant

Choose a company name

Choosing a company name is a really fun part of setting up; the name can be as abstract or descriptive as you like – if you need any help on deciding on a company name this guide has been designed to help.

Once you’ve decided on the name, you can move on to the formation of your limited company.

Limited company formation

Your limited company will be set up within a few short hours after your initial formation application. Our all-inclusive package costs only £125 plus VAT and includes online registration, VAT & PAYE registration, share structure advice, free business banking, a 15% discount on Hiscox business insurance as well as  a registered office address.

You may come across lower prices for limited company formation; you should have a close look at what is included in the fee, what specific exclusions there are and importantly what type of support the firm offers you.

Appoint a limited company accountant

The final step in successfully setting up is finding a specialist contractor accountant.

Many limited company directors feel conflicted in deciding whether to appoint an accountant or to handle their accounts personally. Unless you have accountancy experience, and understand the intricacies of tax and HMRC regulations, we suggest sourcing an accounting and tax specialist.

This is especially helpful when you’re starting out; it alleviates the stress of juggling your assignments and staying financially compliant, and removes the burden of remembering date-specific deadlines.

Choose a company name

Choosing a company name is a really fun part of setting up; the name can be as abstract or descriptive as you like – if you need any help on deciding on a company name this guide has been designed to help.

Once you’ve decided on the name, you can move on to the formation of your limited company.

Limited company formation

Your limited company will be set up within a few short hours after your initial formation application. Our all-inclusive package costs only £125 plus VAT and includes online registration, VAT & PAYE registration, share structure advice, free business banking, a 15% discount on Hiscox business insurance as well as  a registered office address.

You may come across lower prices for limited company formation; you should have a close look at what is included in the fee, what specific exclusions there are and importantly what type of support the firm offers you.

Appoint a limited company accountant

The final step in successfully setting up is finding a specialist contractor accountant.

Many limited company directors feel conflicted in deciding whether to appoint an accountant or to handle their accounts personally. Unless you have accountancy experience, and understand the intricacies of tax and HMRC regulations, we suggest sourcing an accounting and tax specialist.

This is especially helpful when you’re starting out; it alleviates the stress of juggling your assignments and staying financially compliant, and removes the burden of remembering date-specific deadlines.

Advantages of a limited company

Higher take-home pay

Working through your own limited company is the most tax-efficient option. Provided you are outside IR35, your take home pay will be higher than choosing to work through an umbrella company.

Claim on limited company 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.

The Flat Rate VAT scheme for contractors

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 our page to read more about the Flat Rate VAT Scheme.

Personal assets are protected

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 cannot be held personally liable for the debts of a limited company, meaning your personal assets are not at risk.

Ease of use

Running your own business isn’t difficult; your personal accountant will help manage your finances. 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.

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.

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.

Greater opportunity for tax planning

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 benefits.

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.

All you need to run a successful business

Our free limited company guide will explain all the intricacies of contracting through a limited company.


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Disadvantages of a limited company

A certain amount of paperwork involved

As mentioned above, there are 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. You will also have to file accounts, company tax and corporation tax calculations with HM Revenue and Customs every year, but your dedicated accountant will help with all these aspects.

Costly if contracting for a short period of time

Running a limited company can be costly if you have a short-term contract then decide to go back to permanent employment as you will still be required to submit end of year accounts. Short term contracts are considered to be anything less than a couple of months - but it does depend on your daily contract amount.

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 still be more beneficial trading through a limited company. We would recommend contacting an accountant and asking them for their advice.

Form Your Limited Company for Free

When you sign up for one of our accountancy packages, we will set your limited company up for free. With packages starting at just £120 + VAT, we will form your company and have you up to speed in no time at all.

To form your limited company with us, just click the button below.

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