Limited Company Explained

If you choose the Limited Company route, you will go into business yourself and you will become a Director and Shareholder of your own Company, so you must be committed to managing the business’s finances and the responsibility of working within the relevant legislation. This includes a requirement to complete and submit annual accounts, corporation tax returns and, if registered, VAT returns. This is in addition to bookkeeping and PAYE management.

As a Director of your Company you are not personally responsible for any Company debts, provided you have been acting appropriately.

Your Company must have at least one Director, whose job it is to make sure that the Company is run in accordance with Company Law. You will also need to register with, and submit accounts to, Companies House, along with an annual return updating your Company details.

One of the key benefits of being a Shareholder is the ability to take all or part of your income as dividends. Dividend income is not subject to National Insurance contributions and will be tax free if you are a basic rate tax payer. You will pay 22.5% income tax on the amount of dividend income received above the basic rate tax threshold.

Limited Companies can have more than one Director and/or Shareholder and further tax planning opportunities are available when considering second Shareholders. Dividends may also be deferred by Shareholders, therefore spreading personal tax liabilities over a longer period to reduce higher rate tax liability. Directors can also claim a wide range of allowable business expenses.

If you are running your own Limited Company, you will need an accountant to help you administer your accounts and manage the responsibilities involved. There are also specialist businesses that can work with you and support you to minimise the administration burden but the ultimate responsibility will rest with you.

Further consideration should be given to the necessary insurance, including public liability and professional indemnity insurance. Your policy should include retrospective cover, so you are protected from the day you start trading. If you cease contracting then it is recommended that you are covered for at least 12 months afterwards, in case a claim is made against you. As a minimum, you will require business use insurance for your vehicle and property, and contents insurance for your business property (if applicable).

You should also investigate banking solutions so you can open a Company bank account, separate from your personal bank account, in your Company’s name. You may wish to consider additional services such as loan and overdraft facilities and a savings account where you can invest the money you allocate for VAT and tax purposes.

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