Five Good Reasons Why Running A Limited Company Benefits Contractors

Here are five good reasons why running a limited company benefits contractors, but there are many more benefits than these. Top of the list is that limited company contractors stand to earn more, not only through tax savings but also by benefiting from the higher rates they can charge for the higher risk they take, and the flexibility they offer to clients. And if you think that setting up a limited company is an expensive and complicated process, think again: it isn’t, you could set up a company within the day if you had a mind to.

If you are serious about realising your true earning potential, you will hire an expert accountant from the start, have your business plan scrutinised by them, take up their offer to manage incorporation for you, and take full advantage of their expertise. Early intervention by an expert accountant can mean the difference between success and survival, survival and failure. After all, all the expenses of incorporation, and accountancy fees, are tax deductable. Read on, the two minutes you take to read this could change your future as a contractor.

1. You earn more through a limited company and significantly reduce your tax burden
Do you realise that your monthly return as a limited company contractor can be as much as 85 per cent? As a limited company if, say, you make £50,000 profit you would pay yourself a small salary (below £11,000) and then take the rest as dividends, which mans you pay a lot less tax and national insurance than you’d pay as a self-employed contractor or sole trader.

Not only are there significant tax savings if you are earning £40,000 or more, but also, as a limited company, your spouse or civil partner can share in the company’s profits, meaning even greater tax savings for you and your family.

When you start earning enough to enter the higher rate tax threshold then the tax savings become even more significant; you do want to reach those heights, don’t you?

2. Flexibility and distance from office politics

The benefits of becoming a limited company contractor don’t stop with the tax savings: have you considered the flexibility contracting offers, not to mention the relief from office politics? Okay, it can be hard work running you own business, especially at first, and no one would dispute that, but at the same time, to an extent, you choose your hours, make decisions about whether to diversify or delegate, and make plans about how to take the business forward. Anyone with the commitment and the right support can make a success of running a business. Hiring an expert limited company contractor accountant will be one of the best decisions you’ll ever make as you step boldly into limited company contracting.

3. Reputation, brand, your profile

Along with the tax savings and the added flexibility of being a limited company contractor, there is the important issue of your reputation and corporate profile. Shallow though it may seem, limited companies are much more likely to be taken seriously; which in turn may earn you more clients, more profit, and help you get finance for growth if you need it. And while businesses run as limited companies tend to be perceived more positively, benefit from appearing more professional and successful, and find it easier to find investors and get loans, in addition, some larger companies and organisations only accept tenders from limited companies, so incorporating could open up opportunities that would otherwise be unobtainable.

4. Zero-risk

As a limited company, any risk is the company’s and you are not personally liable. If, then, something should go wrong with the business, as you’re not personally liable, that means you can close the company and move on with your life.

5. Exit strategy

Since unlike a sole trader a limited company is independent of its owner, it can be sold as a going concern with inventory, assets, and clients. Generally, goodwill rests with the company and not the owners or shareholders. Shares are transferable, although only shares in PLCs are permitted by law to be traded publicly.

The Downsides

There are not so many downsides, but there are a few:

1. True, there is additional paperwork and compliance, but this is something a good accountant can easily take care of on your behalf.

2. True, there is the additional discipline of managing the funds of the company. Remember, a company is separate from you and you must treat the company’s money separately from your own.

3. True, there are fewer benefits, like sick pay and holidays, but normally higher earnings cover those differences.

Conclusion

True, running a limited company involves a bit more admin and a bit more discipline, but contractors in my experience soon get used to that. A limited company contractor stands to benefit in more ways than they are likely to be hindered by a little extra work.