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Most contractors choose to operate through their own limited company due to certain tax advantages, which are not possible with other business models.
Some tax advantages may not be applicable should your working contract be caught by the IR35 legislation. However, if you fall outside of the IR35 legislation then you will most likely be better off using a limited company. For more information on IR35, please see our IR35 guide.
Setting up a limited company for contracting is actually a very straightforward process, let’s go through the basic steps now:
The formation of a limited company is actually a simpler process than most people imagine and can take as little as three to six working hours. If you are a client of Nixon Williams, then we will set up your limited company free of charge and register the company for PAYE, VAT and Corporation Tax. We can also provide support to open a business bank account with Metro Bank. You will need a company name, UK address, at least one company director and one shareholder to set up a limited company. This can be done through our limited company application form and a member of our new business team will contact you and take you through the process of forming a limited company.
To receive payment for the services which you have provided to your client, you will need to issue an invoice. This should contain details including the company name, address and registration number, VAT number, invoice date, client name and address and a description of the products or services supplied to the client. If your services are provided through an agency then they may create an invoice on your behalf through an automated self-billing system.
Any expenses incurred for the purpose of the business can be claimed back through your limited company. Common contractor expenses could include business travel, accommodation, the use of home as office allowance, accountancy fees, mobile phone costs, internet connection and training costs. For more information please see our Guide to Expenses.
Limited company directors are responsible for the completion of company accounts, submitting an annual return to Companies House and keeping track of business expenses and client invoices. Many limited company contractors choose to appoint a specialist contractor accountant to help them with their taxation requirements and accounts.
Contracting through a limited company is a straightforward process, and a good accountant will guide you through the process. If you would like to find out more, please contact us on 01253 362 062