Limited Company

[Tosh]

Hi All.
I know this has probably been asked before but I have just been made redundant and thinking about going self employed as a ltd company. (Contracting).
I have heard mixed reports from colleagues and friends as to the benefits of doing so.
Can anyone advise if it is worthwhile over PAYE.
I earned around 64k on PAYE plus benefits 5% pension, healthcare, life assurance - for info.
Thanks in advance.


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[tertius]

I ran my own limited Co. for several years and it is almost impossible to answer without having more specifics.

Things to consider:

1. Will the work/contracts you do be inside or outside of IR35
2. You will almost certainly need to be VAT registered
3. Running a limited company means managing the accounts; filing tax returns, including quarterly VAT returns; paying VAT and corporation tax; maintaining records for at least N (7?) years; and most likely employing an accountant

It may be worth looking at working through an umbrella company which is slightly less profitable than your own Ltd company but does remove A LOT of the hassle.

[Peck]

Some good comments from tertius. I run a single director Ltd company and echo most of what he says. Many of the financial benefits that used to exist are no longer BUT if you run your finances sensibly it can give you quite a lot of options and flexibility - I’ve worked hard to build up a healthy balance in the business which is quite reassuring and you can use your pension to help with tax efficiency. When I’ve had a decent couple of months I always take a “bonus” which helps with morale!

Remember to set a healthy daily / hourly rate to account for the extra costs of running the business and corporation tax. You should also get comfortable with IR35 which can be a major problem.

Good luck and if you have specific questions feel to PM me happy to help if I can.

[Stuno1]

As above, ir35 changes over the past few years have changed the game significantly! I used to run a limited company as a contractor in the finance sector but now have all but no choice other than to go inside ir35 via an umbrella company. In many ways it makes life easier but I earn significantly less.

[adrianw]

As above, ir35 changes over the past few years have changed the game significantly! I used to run a limited company as a contractor in the finance sector but now have all but no choice other than to go inside ir35 via an umbrella company. In many ways it makes life easier but I earn significantly less.

Do you earn less, or get less to take home, there is a massive difference

[Stuno1]

Do you earn less, or get less to take home, there is a massive difference

Take home less, substantially less. Based on the same day rate moving from limited company to umbrella I lost around 17k per year in my pocket.

[bambam]

Some rates reflect the lower take home due to the IR35 regs, but not all. Some agencies will ask you for a scale of rates depending on whether a contract is in or out of IR35.
Friends that are contracting currently are taking home less than they used to on similar contracts. But like I said, some employers will raise the rates to reflect the lower take home.

[Man of Kent]

Back in the day you would pay yourself as much dividends as the company account could cope with but now I believe it's only £2k per shareholder without tax penalty. Hardly worthwhile.

[Stuno1]

Some rates reflect the lower take home due to the IR35 regs, but not all. Some agencies will ask you for a scale of rates depending on whether a contract is in or out of IR35.
Friends that are contracting currently are taking home less than they used to on similar contracts. But like I said, some employers will raise the rates to reflect the lower take home.

I did secure a day rate increase not it only made up 3k ish of the 17k deficit.

[Neil.Ldn]

As others have mentioned the governments war on PSC’s and IR35 in particular have made Ltd company contracting not worth the bother any more. The only reason I still work this way is for the lifestyle I am used to. That and the fact that I’ve been freelancing so long that I am probably unemployable now anyway! Be careful with IR35 and umbrella companies - there is a lot of shady practice going on in an essentially unregulated (umbrella cos) industry.

I personally will not entertain inside IR35 contracts anyway on the basis that I disagree with the concept of no-rights employees that the govt. is trying to usher in.

[Stuno1]

As others have mentioned the governments war on PSC’s and IR35 in particular have made Ltd company contracting not worth the bother any more. The only reason I still work this way is for the lifestyle I am used to. That and the fact that I’ve been freelancing so long that I am probably unemployable now anyway! Be careful with IR35 and umbrella companies - there is a lot of shady practice going on in an essentially unregulated (umbrella cos) industry.

I personally will not entertain inside IR35 contracts anyway on the basis that I disagree with the concept of no-rights employees that the govt. is trying to usher in.

Agree with all of that but sadly many like myself were given no option. We could always leave and go elsewhere but securing outside is harder and contracts are shorter. I am still better off than being permenant and importantly for me can take as little or as much time off as I please and don’t have to do reviews etc all the time.

[blackal]

As others have mentioned the governments war on PSC’s and IR35 in particular have made Ltd company contracting not worth the bother any more. The only reason I still work this way is for the lifestyle I am used to. That and the fact that I’ve been freelancing so long that I am probably unemployable now anyway! Be careful with IR35 and umbrella companies - there is a lot of shady practice going on in an essentially unregulated (umbrella cos) industry.

I personally will not entertain inside IR35 contracts anyway on the basis that I disagree with the concept of no-rights employees that the govt. is trying to usher in.

I don't think that IR35 has any impact on 'employability' - it is merely a method of getting higher Income Tax for HMRC.

The last time I was 'forced' inside IR35, the agency that the Principal Co used for all subcontractors - offered PAYE or approved umbrella Co contracts.

I much prefer LtdCo work as I don't require all my earnings, so why take it all personally and pay the elevated PAYE on it? Much better to pay myself the minimum and get the employer's allowance for small businesses on NI. The Company funds after Corp Tax can be used more effectively in retirement, I feel.

If you are mainly selling your time/talent - then go for flat-rate VAT, and keep it simple. Downside to flat-rate vat is that you require a purchase invoice to be >£2,000 in order to claim the VAT back.

Digital VAT can be done pretty cheaply - you don't need to pay SAGE levels of service - I use VitalTax and it links to the annual spreadsheet I maintain for remittals.

If you think you can justify a 'truck/combi-van' either exclusively as your only 4wheel transport or as an additional vehicle - there is still an advantage in it being purchased by your LtdCo.

Claim VAT back on the purchase price
Pay VAT back on the re-sale price after depreciation down the line.
Pay a Benefit In Kind on the personal use of that Company Vehicle (is it £600 p/a?)
Pay a Benefit In Kind on all fuel for that vehicle if paid for by the Ltd Co. (I believe another £600 p/a)


Don't forget Company Insurance - You might typically pay £450/pa for that (including Employer's Liability, product cover etc).

Ltd Co accounts - you could pay around £800 p/a, including the accountants running your payroll in that figure. As before, if you are a consultant with few purchases/sales - then your accounts can be pretty simple.

Is it the end of the world if you try it for a year or so? If it prove onerous - just go PAYE.

[Scepticalist]

It really depends on how much IR35 work you;re going to do.

As Blackal alludes, it might be worth going LtdCo to build up pension and/or store up funds in the company for retirement rather than simply to gain a little in annual income.

[Tosh]

Thanks for the advice / comments. Plenty to think about.


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[aa388]

You need to really think it through how you do it. I was a sole trader and had a Ltd co. There was a marked difference in what I could get away with and claim between the two. Some caught a serious cold when the way they were paying themselves and taking dividends but them when Covid struck.


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[Stuno1]

Thanks for the advice / comments. Plenty to think about.


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It can work in your favour. I work on very long term multi year projects but inside ir35 via a umbrella company with no ropey scheme to pay you more. I am still earning a considerable amount more than if I were permanent. It all depends on your situation and appetite for risk.

[blackal]

You need to really think it through how you do it. I was a sole trader and had a Ltd co. There was a marked difference in what I could get away with and claim between the two. Some caught a serious cold when the way they were paying themselves and taking dividends but them when Covid struck.


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For sure - I got the princely sum of £550/month from the furlough system, but I’m not a (say - Hairdresser) who has all the overheads. Would I have liked more furlough? Sure, but ain’t complaining about the way it was calculated - you cannot have a bailout based on dividend earnings.

Ltd Co works for me, unless someone can show me where I went wrong (that’s not a challenge - I’m no accountant!)

I say - give it a try, and even if you don’t maximise the benefits - I don’t think you are going to be out of pocket.

[unwittingaccomplice]

Back in the day you would pay yourself as much dividends as the company account could cope with but now I believe it's only £2k per shareholder without tax penalty. Hardly worthwhile.

This is all true but the main benefit to being a Ltd co. for me is income sharing with my wife. We both take dividends from my business and get to use her unused tax code rather than having me taxed more at 40% as happens with perm jobs or inside ir35 gigs. It makes a considerable saving on tax and as others have said it allows income planning. We take as much as we need and leave the rest in the business. If we had shared taxation in the UK I'd probably not bother but being a married couple with a wife who works part time and kids is punished by the tax system.

Regarding jobs, I have switched to fixed price deliverables and concurrent part time outside IR35 contracts. My last contract was assessed by QDOS as outside IR35 by the end client. They effectively bought insurance to cover themselves if the revenue went after them later. They did it because there are lots of folks like me won't do inside IR35 jobs. A positive move for the industry.

If you are starting out I'd get the work first and decide the strategy afterwards. I set up from scratch as a limited company because my industry demands it but other industries work differently.

[Tosh]

This is all true but the main benefit to being a Ltd co. for me is income sharing with my wife. We both take dividends from my business and get to use her unused tax code rather than having me taxed more at 40% as happens with perm jobs or inside ir35 gigs. It makes a considerable saving on tax and as others have said it allows income planning. We take as much as we need and leave the rest in the business. If we had shared taxation in the UK I'd probably not bother but being a married couple with a wife who works part time and kids is punished by the tax system.

Regarding jobs, I have switched to fixed price deliverables and concurrent part time outside IR35 contracts. My last contract was assessed by QDOS as outside IR35 by the end client. They effectively bought insurance to cover themselves if the revenue went after them later. They did it because there are lots of folks like me won't do inside IR35 jobs. A positive move for the industry.

If you are starting out I'd get the work first and decide the strategy afterwards. I set up from scratch as a limited company because my industry demands it but other industries work differently.

Thanks for the advice.


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[David_D]

Back in the day you would pay yourself as much dividends as the company account could cope with but now I believe it's only £2k per shareholder without tax penalty. Hardly worthwhile.

Not really a tax penalty, you just pay tax over and above what the company paid (19%, is it currently?). Suspect dividends can still be tax-efficient but that's why having good professional advice on personal circumstances is worthwhile.