A limited company contractor can provide a lot of benefits. In particular, the tax efficiencies can be ensured in 5 main areas namely expenses, bank interest, VAT Flat rate scheme, IR35 status and income splitting. These are the five main attractive possibilities of a limited company as far as tax efficiencies are concerned. With these tax efficiencies, you can get ample number of benefits. However, even after these possibilities of tax opportunities, Limited Company is still not meant for everyone. The limited company contractor can help you in getting all assistance and necessary details.

Contractor Limited Company

Most contractors set up their own limited companies to undertake contract work. The main benefit of contracting via your own company is that you can make significant tax savings compared to umbrella company contractors and permanent employees.

If you work via a ltd company, you will derive most of your income in the form of dividends (which do not attract any National Insurance Contributions), and a modest salary.

You should sign up to use a specialist contractor accountant, who will take care of all your legal and statutory obligations as a contractor.

Although your accountant will take care of you tax a legal administration, you should remember that as a limited company director, you are ultimately responsible for ensuring that you submit your accounts and other paperwork accurately, and on time.

In terms of administration, you will have to spend an hour or so a month updating your records, invoicing clients, and sending your paperwork to your accountant. However, and 'hassle' you suffer is very small compared to the tax benefits of being a limited company contractor.

Further Considerations

One of the main factors you should consider before deciding upon a business structure for your contracting business, is whether or not your contract work is caught by IR35 or not.

Essentially, IR35 targets contractors who work in an almost identical way to permanent employees, and do not demonstrate that they are 'self employed' according to the HMRC definition.

If you are unsure as to whether or not your contracts are caught by IR35 or not, make sure you send your contracts to an IR35 status review specialist who will provide the advice you need.

Umbrella Company

Many contractors decide to work via an umbrella company, which is very much the 'hassle free' route to take.

All you need to do once you sign up to an umbrella service is to submit your timesheets and expenses claim online, and your umbrella will take care of all your administration, and pay you a regular salary net of tax and NICs.

This is not the most tax efficient way to contract, as you will be liable to pay full income tax and NICs on your entire income. You cannot take advantage of the tax benefits associated with working via a limited company.

If you are contracting on a short-term job, then an umbrella could be the ideal solution for you, as it is so quick to put in place.

If your contract work is caught by the IR35 rules, then the tax benefits of working via a limited company are very much eroded, and an umbrella company may be the best solution for you.

Limited Company Contractor can be one of the most useful tools that you can have because he can guide you extremely well. Matters related to companies and tax is not simple at all and therefore you need someone who can assist you and guide you well. A limited company contractor, for example, can give you right advice that is useful in incorporating your company. Whether it is good for you to start this company or not can also be recommended by your contractor. So taking necessary help and suggestions from your contractor is always a good solution



Jake Swann is the author of this article on IT Contractors. Find more information on Limited Company Contractor here