As a contractor, many reasons exist why forming your own limited company makes sense. While it’s not always the best solution, running your business through a limited company as a contractor does have benefits. Most of the time, it’s a very efficient set-up for tax purposes. It also leaves you in total control of the financial status of your business, meaning you are in complete control of what is spent. This means you have total control – but also total responsibility.
Regardless of the reasons you wish to set up a contractor limited company, the process remains the same. If you wish to learn the key steps towards stress-free setting up of a limited company, read on. We’ll cover the key steps that will take you through the process you must follow. How can you set up a contractor limited company?
1. FORM A LIMITED COMPANY
First off, you should set up your limited company. This means registering your new corporation with Companies House. This involves completing a variety of different documents, including the Articles of Association, and send them back over to Companies House to be verified.
Most of the time, this will involve working with a professional accountancy firm. It’s recommended that you choose an accountancy firm with expertise in setting up a limited company. You should make sure that your application is correct prior to sending it away, as mistakes can inhibit the formulation process.
2. OPEN A BUSINESS BANK ACCOUNT
Next, you need to carry out the set-up of your business bank account. This is important, as your new contractor limited company needs to have its own account for legal purposes. You will also need to make sure that the new business bank account is in the same name as your newly formed company.
The main challenge now comes from picking the bank that offers you the best opportunity to succeed. Be sure to look around, and to speak with your current bank for normal affairs to find out what business banking accounts they can offer.
3. GET PAYE REGISTERED
Another consideration for any contractor limited company being set-up is Pay As You Earn, also known as PAYE. Put simply, all employees of a limited company are subject to both PAYE and NI on any company salary received. You must therefore get PAYE registered and account for the monthly PAYE & NIC payments needed each month. For anyone considering setting up a contractor limited company, don’t forget about registering for PAYE: it’s a small yet significant mistake.
4. EVALUATE VAT FOR YOUR LIMITED COMPANY
Before continuing any further, we recommend that you take a look at your current VAT situation. VAT constantly undergoes new changes from government to government, and it’s important to keep an eye on new VAT schemes. A new change came into effect in 2017, the new Flat Rate VAT scheme, and other changes may arrive in the future.
You should consider registering for VAT if you would benefit from the VAT Flat Rate scheme mentioned above. It’s a business-friendly system which makes accounting for VAT a bit easier than beforehand. You charge VAT at a standard rate of 20%, but you would pay a lower rate to HMRC depending on the industry that you work within.
However, please note that the vast majority of contracting companies will fall under what is now known as the ‘Low Cost Trader’ classification. This means that you would pay a higher rate of 16.5%, with a 1% discount provided in your first year. As ever, you should look to get personalised advice based on your business and industry.
5. HANDLE ALL INSURANCE NEEDS
Any company, especially a contractor limited company, must take insurance needs very seriously. We recommend that you look closely at Professional Indemnity Insurance. This helps you protect yourself from issues such as claims of negligence, intellectual property breaches, dishonesty accusations or any impact from the loss of data and/or documents.
Quality PII will cover you for a significant claim. It’s always worth considering and will always be a sticking point before signing a contract with a client. Make sure you consider the importance of this insurance for your business in the set-up process.
6. TAKE CARE OF ALL EXPENSE RECORDS
At this point, your company will be expected to become more methodical in how it manages its expenses records. You will need to keep a much closer eye on invoices and expenses for your new contractor limited company. Any accountant you work with will need to be able to provide annual accounts and (if applicable) VAT returns on a quarterly basis. To do this, they’ll need the relevant information.
Most of the time, this will be carried out through a secure, easily accessible online system. This will make delivering all expense records to your accountant much easier. Setting up a contractor limited company should help your business, so make sure not to hinder yourself with poor record keeping on expenses.
FINDING THE HELP YOU NEED
Of course, setting up a limited company might still seem daunting to you. If that’s the case, it pays to invest time in hiring professionals you can rely upon. At Devonshire Green, we provide a professional ‘everything done for you’ set-up service. This can be useful for numerous reasons, not least it saves you dealing with any of the above tasks.
If you lack the time/confidence to carry out the above, let us help you today. We routinely assist in the successful set up of limited companies on a regular basis. With a full understanding of the steps involved, we make what is often a complex process, simple. With our help, you can arrange the set-up of a contractor limited company in a much shorter space of time than it may take alone. Contact us today, and we’ll help you get up and running in no time.