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If you have a doubt on a different topic than the ones covered below, please ask a question using the form on the right, we will reply within 4 working hours and notify you via email when this has been done.

1. I am a contractor interested in setting up a limited company and I hear it is an efficient way of running my affairs. Is this true?

It is certainly true that many contractors choose to run through a limited company as it is often the most profitable way of operating, especially as it offers the ability to take control of your own affairs and structure your payments in the most efficient way.

However, it should be realised that you will be fully responsible for the running of the company and therefore need to be adequately advised by a professional accountancy firm with specialist knowledge of the issues facing contractors. SPi is an ACCA registered firm who can take you through everything you need to know and support you and your company throughout your contracting career.

If you would like to see the benefit this could bring to your personal circumstances why not call a member of our experienced team on 0151 443 6838.

2. What are the first steps? and how long does a company take to set up?

It is vital that you get the right advice at the outset in order to establish that running your own limited company is right for you. We will take you through a ‘best advice’ approach to establish this. Some of the key considerations are the contract rate, the length of contract and your future contracting plans.

For example, if your rate was £20/hour and you expect to contract for a minimum of 6 months with a view to use the company for at least 12 months then this would seem to be a good option for you.

However, if your contract rate was £10/hour and you expect to contract for less than 6 months and then seek full time employment then the limited company option is not for you.

There are other considerations around what is known as IR35 which HMRC introduced to counter disguised employment.

The company formation can be provided as a separate service and this typically takes 24 hours, in most cases this can be achieved same day.

3. Should I worry about IR35?

HMRC still seek to apply the ‘intermediaries legislation’ which is more commonly known as IR35 to cases where the individual is using a limited company to disguise their employment status with the end client.

We recommend to all clients that they obtain an independent IR35 review for each contract undertaken. SPi Accountancy are an Associate Member of Bauer & Cottrell, giving you access to preferential rates and free IR35 helpline.

If IR35 applies then the opportunity to efficiently structure your affairs will be reduced.

4. Can I take cash from my company as and when I want to?

The money generated and held within the company belongs to the company and should be kept separate from your personal bank account and assets. Income from the company must be extracted in the form of salary and dividends, after accounting for the settlement of relevant expenses and taxation.

5. Assuming I fit the criteria under best advice to consider going limited, what happens then?

Firstly you will need to decide upon a company name, purchase a new company and set up a company bank account. 

Whilst we can’t help you choose your company name, we can assist you swiftly and painlessly setting up the company and opening a bank account. We have partnered with the Royal Bank of Scotland and would recommend using their Personal Service Company bank account.

6. How does it improve my earnings? I have been umbrella before what’s the advantage?

Holding shares in a Limited company entitles you to dividends which are outside the scope of national insurance. In addition, if your personal income does not exceed the basic rate band of tax no additional income tax is payable on them. If you exceed this threshold additional tax will be due.

When you use an umbrella service all of your earnings are subject to PAYE and national insurance and there is no opportunity for tax planning.

As director of the Limited company you will also have the flexibility of deciding when to take your income, allowing you to structure your affairs in the most tax efficient manner. There are other options available which we would be more than happy to discuss with you in detail.

7. Once the company is set up, is there much paperwork for me to do?

SPi has two levels of service for active companies as follows:

  • SPi Vital – this service is designed for contractors who are happy to take on much of the administrative work involved in running the company but wish to ensure that they have an accountant who will ensure all of the key compliance matters are dealt with.
  • SPi Liberty – this service is designed for contractors who wish to be free of all the administrative work involved in running the company as well as the peace of mind that all compliance matters are being dealt with.

Under both of the above service levels there will inevitably be accounts and forms for you to review and sign as director and we can explain these to you. As the name would suggest, SPi Liberty takes away as much hassle as possible to leave you free to concentrate on your contract.

8. Can I claim expenses and if so, what expenses can I claim?

Yes, you can claim expenses to be reimbursed to you by the company tax free provided they are allowable under HMRC rules. Expenses can be either incurred in performing your contracting duties or those connected with running of your company. SPi can offer you full support on what can be claimed and how to complete claim forms and maintain records.

9. What is FreeAgent?

We use the revolutionary FreeAgent software which means invoices can be created in any currency, bills and expenses can be accurately tracked and you can view projected income tax, VAT and PAYE, scan expenses and generate dividend vouchers with a click.

10. So will I be an employee, director or shareholder of the new company?

You will be all three. On formation we will notify Companies House of your appointment as a director and shareholder and from this point forward you will be responsible for the affairs of the company. 

As a shareholder in the company you will have an entitlement to dividends. You will also be an employee of the company and you will need to decide upon the terms of employment (e.g. you will need to establish what remuneration you are to draw from the company). SPi can talk you through the issues involved here.

11. Do I need to organise insurance for my company?

Yes, employers’ liability insurance will be a minimum legal requirement and most contracts require that the company has employers’ liability, public liability and professional indemnity insurance. 

This can be difficult and very expensive for contractors to obtain. Recognising that this is a potential stumbling block for contractors at the first hurdle, SPi has teamed up with a specialist broker to provide a combined policy covering all risks (up to policy limits) for contractor clients of SPi accountancy.

12. How much do SPi services cost?

SPi Vital is a fixed fee of £95/month plus VAT (this excludes insurance) and SPi Liberty is fixed at £125/month plus VAT (this includes insurance).

Insurance can be added to the SPi Vital service at an extra cost of £15/month if required or it can be taken out of the SPi Liberty service with a cost reduction of £15/month if you wish to arrange your own insurance.

There is a set up cost of £100 plus VAT and for this we will purchase the company and get all registrations completed (e.g. Companies House notifications, assistance with bank account opening, VAT registration, Flat Rate Scheme VAT registration, PAYE registration, Corporation Tax etc).

13. What happens if my contract ends and I return to PAYE?

If your contract ends you can either close your company down or leave it dormant. If you leave it dormant you can use it again if you get another contract. If you close it down we will need to follow a routine to ensure all necessary statutory forms are filled and liabilities settled.

14. With not as much work in the UK I am looking at France, Holland and Germany . Can I contract through my UK Ltd company if the contract is with a UK based agency? Mike

Good Afternoon Mike,

Thank you for your query. 

Whilst it is possible to operate through your UK Ltd company whilst working overseas, we usually advise against this. The fact that you are billing a UK agency is not relevant as taxes generally fall due in the  country where you are working. To avoid possible double taxation, we recommend you put your UK company in a dormant state and go on a local payroll. Our sister company I-Paye will be able to advise further on this.

15. I work as a Health and Safety consultant, if I was to start up a Ltd company what would my gross return rate be? Ian

Hi Ian, 

Thanks for your query.

You can expect to retain 75% of your gross income operating as a Limited company outside IR35. For more information and to have a detailed illustration please contact us on info@spiaccountancy.co.uk or on 0151 443 6838.