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What is a limited company?
What are the advantages of a
limited company?
How do I start a limited company?
What records do I need to keep?
What about VAT?
What is the tax position?
What is IR35?
What do I do next?
What is a limited company?
A limited company is a legal entity owned by its shareholders
and managed by its directors. It must also have a company secretary
who keeps the various records required by Company Law. There need
be only one shareholder who can also be a director; thus you can
both own and manage your company. However, the secretary must be
another person; this may be your spouse or a friend, but we can
be appointed if you prefer.
What are the advantages of
a limited company?
There can be some tax savings, but a company is usually
set up for commercial reasons. Customers sometimes prefer to deal
with a limited company, and in some industries contractors find
that they can only obtain work if they trade through a limited company.
How do I start a limited company?
If you need a company quickly, we can obtain a ready-made
one the same day as receiving instructions. However, it is usually
better to set up your own, which takes about 10 working days. We
will obtain the company, write up the register of shareholders and
directors, and deal with the appropriate share certificates. You
may also use our office as the "Registered Office" of your company.
What records do I need to keep?
Once you have your company, you will need to open
a bank account. Probably the bank with whom you have your personal
account is a good place to start. All income received and business
expenses paid should go through the company bank account, and you
will need to keep a record of where the money came from and how
it was spent. The type of records you need depends on the size of
the business. A simple book or spreadsheet may be enough, but a
basic computer accounts package will also look after VAT returns.
Many of our clients simply give us their bank statements and invoices
on a regular basis and we keep the necessary records on their behalf.
At the end of the year, you will need to have accounts prepared
showing the financial results for the period, and a copy of the
accounts must be sent to the Registrar of Companies and the Inland
Revenue.
What about VAT?
Most businesses need to register with the local VAT
office, unless their turnover is less than £61,000 in a year.
However, it is often best to register at the outset. You will need
to add VAT to your customer invoices, but you will be able to reclaim
VAT that has been charged to your business. Every three months you
will need to pay the difference to Customs and Excise. We can help
you to register and to deal with the quarterly VAT returns.
What is the tax position?
Companies pay corporation tax on their profits. However,
if your company is mainly providing your services to a client, almost
all of its income will be paid to you as salary, and the company
itself will probably pay little or no tax. The salary that you draw
will be subject to income tax and national insurance deductions
under PAYE just as it would be if you were working for any other
employer. You will need to register with the Inland Revenue, calculate
the PAYE and pay it to the Collector of Taxes each month. We also
provide a payroll service as many clients prefer us to deal with
the calculations on their behalf.
What is IR35?
"IR35" refers to an Inland Revenue press release that
announced new legislation for individuals who are effectively in
employment but who supply their services through a limited company.
The new rules started in April 2000, and although there has been
some controversy, these notes assume that your company is within
the scope of the new law.
What do I do next?
You should talk to your accountant as soon as you
know that you have a contract where your client needs to deal with
your limited company. If you do not already have your own company
you will need to set one up quickly and arrange banking facilities
so that you can be paid!
Contact us now for an initial
free consultation.
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