Contractors generally have to make a decision about how to receive their pay and in recent years changes to tax legislation have led to more and more contractors considering setting up as a ltd company or PSC.
Recruiters are often asked for advice on the different routes available when placing a contractor. Which route an individual should take should be their decision and it can be hard to offer advice as the situation isn’t always clear cut. Everyone’s circumstances are different however, there are some factors which should be considered and which may help an individual to make an informed choice about the right route for them.
What to consider when establishing a limited company
Rate of pay
Those on higher hourly or day rates of pay will often find that operating as a ltd company is the most tax efficient approach.
The nature of the contracts
Contractors should consider not just their pay rate but the type of contracts they work on. For individuals who are outside of IR35 then there will usually be a tax benefit to operating as a limited company. However, for those who routinely work on contracts where they are subject to supervision, direction or control, setting up a limited company may not be the best approach.
Administration and responsibility
Taking on the role of a company director brings with it certain responsibilities such as preparing and filing accounts. This is something that anyone weighing up their options should consider. Using a specialist service such as Sterling Professional can remove the administrative burden on the director, and allow them to ensure continuity of income.
Setting up a limited company is a natural progression for many contractors when the time is right. There are clear benefits and it can be satisfying to be your own boss. However, it is a big step and it is important to have the right support in place. Anyone who feels they are at this stage should get in touch, we can provide guidance and accountancy support through the start-up process and beyond.
If you have contractors who fit the criteria for Limited company status, then get in touch and we can provide a free personalised assessment of suitability.