Establishing a Limited Company

Limited Company

Limited Company

When working as a freelancer or contractor, there are benefits to be had when going through an agency such as an umbrella company if you are having difficulty locating jobs. However, there are downsides as well which you should be aware of in order to make the choice which is right for you. Unless you are simply unable to find clients who are in need of contract workers, it might just be to your advantage to speak with a certified accountancy such as Nixon Williams in order to determine whether or not being an agency worker is in your best interest.

One of the options contractors have is to set up a limited company so that they cannot be considered as employees in order to fall outside the scope of both IR35 and AWR. This is important for a lot of reasons, but mostly because the contractor is able to take home more money and pay less in taxes. This is not tax avoidance in any way, shape or form. It is legal and above board but a way to pay less of your hard-earned money nonetheless. A good example of this would be the National Insurance tax. Employees are bound by IR35 to pay into this tax whilst Limited Companies can pay shareholders in dividends.

So what then is a shareholder of a limited company and what is an employee? You can find some of the answers to those questions on nixonwilliams.com but the short answer is that the owner of the limited company (you) is the shareholder. You can choose to take all contract income as dividends or you can take some in dividends and some in wages. The key point to remember here is that NI tax isn’t paid on dividends (profits from the company) but NI tax needs to be paid on wages. In order to keep their National Insurance in good standing, some contractors spread profits between dividends and wages when paying themselves. Nixon Williams can help you establish a limited company if this is the right decision for you.