Contractors using limited companies

You may have recently made the decision to go it alone and become a contractor for the first time. The agency or company that you are contracted to may have requested that you form a limited company. This is because in the present climate it is unlikely that any agency will contract with an individual due to the risks associated with the individual being deemed an employee. Virtually all agencies now insist that a contractor's services are invoiced through a limited company be it their own or an umbrella/composite company. The Inland Revenue are also encouraging some contractors to form limited companies. Whatever your reason it is possible that this is the first time that you have considered forming a limited company.

Some individuals may choose to use a service provider that places them within an umbrella company or composite company. Whilst this may work for some people it is not ideal for most contractors. Within an umbrella company you are an employee with many others working under one company. This may limit you in terms of paying yourself dividends as required. Composite companies place you as one of many shareholders within a single company. This allows you to pay dividends but it can get very complicated with various shareholders receiving various levels of dividend. In addition to these points it must also be noted that the Chancellor has reviewed composite companies and will be adjusting the previous tax position for these companies.

This has led many contractors to operate their own limited companies. By forming a new company in your preferred name, you are appointed as the sole director and shareholder. This means that you have absolute control over your own affairs. You have the flexibility to pay yourself PAYE and dividends as and when needed. You can claim back all of your legitimate expenses without worrying about anyone else that is employed under the same company.

If you need assistance in forming your own limited company then do not hesitate to contact us. If you require information the please follow this link to personal service companies