When setting up a limited company for contracting, there are many factors which have to be taken into consideration. Do you want to get help in order to set up a limited company? How can I set up a limited company myself?
What needs to be done first?
One of the many benefits of setting up a limited company is that if any debts accrue, the assets which directors have won’t be considered in order to pay them off. Directors are not paid through a salary but dividends and these are taxed at a lower rate than the PAYE system. In order to start a limited company for contracting, there are many items of paperwork which have to be initially filled in:
Memorandum of Association
Detailing the names of every shareholder, their intentions are also entered onto a Memorandum of Association as well as the number of shares which a shareholder intends to buy.
The personal details about each director, such as their addresses, have to be entered onto Form IN01. A company’s share value has to be provided as well.
Articles of Association
Providing details about how a company will be run, Articles of Association were first introduced by the Companies Act 2006 in order to reduce the number of administrative duties which a limited company has to do. Unique Articles of Association can be completed but it is recommended that a standard document is filled in instead.
These documents have to be submitted to Companies House – this is the only organisation that can approve the formation of a limited company. Documents can be submitted online and the cost of doing so is £18. A paper-based application can be made and the total cost which you will have to pay is £40.
If you don’t want to register a limited company yourself, a Formation Agent can do it on your behalf. A Formation Agent will be the only person that talks to Companies House and you won’t have to do anything. Sit back and relax because a Formation Agent can carry out all of the hard work for you at a cost of around £20 to £30. You must remember that when setting up a limited company for contracting, it can only be used once Companies House has given authorisation.
A specialised accountant should be chosen
Unlike what happens in a Sole Trader business, you shouldn’t submit your tax return yourself and the assistance of a highly specialised accountant must be selected. An accountant can help a limited company with contracting for many different reasons:
As soon as your profit margins exceed £77,000, you are liable for VAT (Value Added Tax). The current VAT rate in the UK is 20% and if you do not apply this figure to invoices as soon as your profit margins reach £77,000, you might have to pay a hefty VAT bill. However, an accountant will be able to do this on your behalf. Therefore, when invoices are submitted to clients by your employees, the correct amount of money is detailed.
The amount of Corporation Tax which a limited company has to pay on its profits varies. For example, when profits are less than £300,000, a 20% Corporation Tax rate is applied. However, when profits exceed £1.5 million, a 24% rate of Corporation Tax is charged. If a limited company’s profits are between £300,000 and £1.5 million, they can apply for ‘Marginal Relief’ which is a lower percentage of Corporation Tax than 24%. Calculating the profits which a limited company makes that are liable for Corporation Tax can be time-consuming. However, an accountant will be able to work out a precise and accurate figure.
When an accountant that specialises in contracting is hired, you will be able to provide HMRC (Her Majesty’s Revenue and Customs) and Companies House with the right information. After all, your time will be spent on boosting profits and you might not know how tax can be calculated. Why run the risk of being completely confused by tax when an accountant can do the hard work for you?