Jenrick IT has been working with IT contractors for over 25 years and has always looked to offer the best advice available. It is to this end that we have worked with Tax and Limited company experts, 1st Option Accountants, to offer advice and help on setting up and running a Limited Company. Marc Morris of 1st Option agreed to contribute to a series of help videos that will be launched over the coming weeks and months.
Philip Fanthom (Managing Director, Jenrick IT) commented;
“We are delighted that Marc agreed to work with us on these videos. It is great to have experts in our corner such as 1st Option. Personally, I have found them to be extremely knowledgeable with a very good customer ethic. Marc has the ability to cut threw the jargon normally associated with accountants and talk to me in plain English”
In this first video, Marc gives and overview on the benefits of being a limited company contractor:
A limited liability company is the most common kind of corporate structure used in the UK. It is commonly used by contractors who choose to work independently or in a freelance capacity and is the vehicle through which their affairs are generally managed and through which their income is channeled.
Its attractiveness stems first and foremost from the fact that personal assets are regarded as distinct from the company finances. Therefore if insolvency occurs it is the assets (shares of the company) that are at risk. Company directors are afforded “limited liability” and so they are not personally responsible for the liabilities.
There are other structural advantages too. For example, a UK Limited company only needs to have one director thereby making it very suitable for contractors.
In addition when it has a turnover of less than £5million, there is no requirement for the company to be audited and the company can be structured so that ownership of shares can be split between a contractor and his or her spouse (or other member of the family). Operationally some contractors prefer to trade using a limited company as it provides greater flexibility and control than using an Umbrella company since it can be tailored to suit an individual’s personal financial goals and tax planning.
Furthermore, monies earned through contracting are paid directly to the contractor’s business bank account and are not directed via the Umbrella Company first.
Setting up a limited company is also a lifestyle choice; you are completely in control of your own destiny. However you should also remember that as the director of the company you are legally responsible to ensure that you comply with all statutory obligations. Of course you are not on your own and by choosing a good accountant, specializing in this sector, you should find that you are guided through the key areas without any major issues.
Finally a contractor’s “market-ability” increases hugely when they are engaged through a limited company structure. Previously contractors had commonly declared themselves self employed (or as “sole traders”) without formally setting up a limited company. These days however, recruitment businesses are unlikely to deal with any contractor who chooses to operate as a sole trader as it not only contravenes the law but also the recruiter could be accountable for the contractor’s PAYE and NIC’s if there was a default on payments to HMRC.