When you start looking at how you will be paid, you usually have three options – agency PAYE (Pay As You Earn), umbrella PAYE and Limited Company. When you consider agency PAYE, your income will be subjected to National Insurance contributions and full income tax. When you consider umbrella PAYE, an umbrella company will act as an employer for you. Your contract income will be subjected to Tax and National Insurance.
When you consider a Limited Company, you will be able to take dividends. Although it needs contractors calculator and more administration than any other options, there is no doubt that it is more tax efficient. In terms of trading, here are frequently asked questions about Limited Company:
What is a Limited Company?
Limited Company (Ltd) refers to a business entity that is separate from its officers. Simply put, the company’s assets, liabilities, profits, and losses are separate from the personal finances of the owners. In other words, the owners are protected from the financial liability if ever the company will encounter any difficulty in the future.
What are the advantages of trading as a Limited Company?
It was mentioned earlier that it is tax efficient. Aside from that, you have the chance to build a reputable brand. Limited Company also offers higher retention than Umbrella Companies because you can compensate yourself in different ways through dividends, pensions and many more. This means that you do not have to pay full National Insurance and Income Tax.
In addition, a Limited Company will allow you to share the business with others if they receive dividends. However, you need to justify it if investigated by HMRC (Her Majesty’s Revenue and Customs). When it comes to obtaining bank loans, approval is easier for a Limited Company.
Who can set up a Limited Company?
Any individual of any nationality can register a Limited Company. However, you need to know the conditions – not subject to UK government restrictions, not un-discharged bankrupt and not restrained by court order.
What kind of records must a Limited Company keep?
Regardless of the nature of the company, the law is requiring to keep a full record of all income, expenses, assets, and liabilities. These records are important when submitting annual accounts.
What information needed to set up a Limited Company?
To set up a Limited Company, you will need a company name. You need to ensure that your company name is available. After that, you should put company address, registered address and the Director’s details. Finally, you need to provide a total number of shares and shareholders.
What documents should be submitted annually?
You must provide documents following your ARD (Annual Reference Date). This refers to the last day of the month when your company was incorporated. You have at least nine months to submit documents to the Companies House. Documents include abbreviated accounts, full accounts, and corporation tax return (CT600). On top of that, you need to submit a few documents to HMRC.
Does it require trading immediately?
You have to know that your company can remain dormant for as long as you want. However, you need to file dormant account forms to Companies House and HMRC together with your annual return form.