Running your contractor Limited Company

What you need to know before you get started with your

• Together with your Contractor Accountant, you need to decide if the Limited Company route is right for you. See Ltd company v umbrella to decide if the Ltd company service is best for you.
• You then need to think how involved you would like to be in the day-to-day running of your contractor Ltd company.

If you want a hands-on approach and are happy inputting invoices etc, then choose the CORE Bronze accountancy service. A qualified accountant is still on hand to advise.

If you would rather leave the processing to a professional contractor accountant, then the CORE Gold service will suit you.
Either way, these are the functions that need to happen after you start your contractor company.

Contractors with a Limited Company already

If you’ve been contracting for a while and have a Limited Company you’ve used for contracting, you can transfer your accountancy over to Orange & Gold. You can continue contracting through your existing Limited company.

You will need to sign a pre-formatted letter to your existing accountant as required by accountancy body regulations.

Contractors can move to Orange & Gold at any time during the financial year but you may find it more convenient to move at the start of a new financial year.

First time contractors

If you’re new to contracting, check out the first timers guide to find out how to setup your new Limited Company. It is a quick and easy process. There is a small additional cost (usually £95) for purchasing a Limited Company for your contracting business.

VAT registration

VAT registration is voluntary but many freelance contractors are keen to take advantage of the FRS scheme (Flat Rate Scheme). The benefit of this to contractors is saving money and reducing administration (for both contractor and accountant!).

VAT registration enables UK contractors to recover any VAT incurred on business purchases (e.g. computer equipment, stationery, accountancy fees).

Your contractor accountant will help you through the VAT registration process. This may take a little time to complete, but should not cause any problems. Your VAT registration number will be allocated to you by HMRC.

Corporation Tax

Again, your contractor accountant will assist in applying for ‘CT’ or Corporation Tax. Corporation tax is a tax on your contractor Ltd Company profits. Company profits are net sales less net expenses. All UK contractors working through a Limited Company are required to register for CT. This must be done once you start contracting through your Ltd Company.

PAYE

At the same time, you will need to register for Pay as You Earn (PAYE). Professional advice from your contractor accountant will ensure that the correct forms are completed and submitted to HMRC.

Setting up bank accounts for UK contractors

You will not be able to use your own personal bank account for running your contractor company. You will need to apply for a contractor business bank account – advice from your contractor accountant will help here. Not all high street banks provide suitable accounts for contractors.

Starting contracting

Once you are contracting, you will need to raise invoices from your approved timesheets. The frequency may vary from agency to agency or end-user but your contractor accountant will be able to work with you to ensure that you can find a system that suits your own requirements. You may wish to invoice weekly, monthly or at the end of your project.

Expenses

As you begin contracting, you will be able to claim some expenses. These expenses are closely scrutinised by HMRC. It is important to claim only for legitimate expenses that are within the HMRC guidelines. These may include:

• Company formation expenses
• Accountancy fees
• Business travelling expenses
• Business postage and stationery
• Business phone calls including mobile phone calls

Your contractor accountant will be able to advise you which expenses are allowable to avoid any problems with HMRC. Contractors are advised to keep all receipts to support expenses.

Getting paid

Although it may be very tempting to spend all the money that comes into your company, you cannot treat all income you’ve received contracting, as your own personal spending money! It is vital that you take your accountant’s advice and only draw funds in the most tax efficient way.

You will need to do some tax planning with your contractor accountant and know how much you need to save for future tax liabilities. You can then receive a basic salary and hopefully a dividend. This is usually the most tax-efficient way for UK contractors to get paid. The experience of your contractor accountant will help you work out the figures.

Quarterly Returns for contractors

We advise UK contractors to complete and pay PAYE and VAT every quarter, rather than monthly. This is simple and allows you to keep the money as long as possible. The HMRC VAT100 and PAYE forms are submitted together with your payment to HMRC.

Contractor Company Year end

At the end of the trading year, Limited company contractors are required to complete a set of accounts for their business. Unless you have accountancy experience, most contractors rely on their contractor accountant to do this for them. This is usually part of the service offered as standard by contractor accountants as it does require specialist, expert accountancy knowledge.

The accounts will be prepared and sent out to the contractor for approval. The deadline for submitting accounts to HMRC is nine months after the year end. Your Corporation Tax will also be due for payment at this time.

Is this the end?

No! You may continue trading through your contractor limited company for many, many years. Orange & Gold Accountancy have contractors who have traded for over 10 years in this way.

If you change contract, you can continue to use the same contractor Limited Company. If you take a break from contracting, you can keep your contractor company, ready for you to use when you start on a new contract.

If for some reason, you decide to wind up your company (for example if you take a long-term permanent job) your contractor accountant will be able to advise on how best to do this.