Limited company
Setting up your own company is the most popular option for contractors, because it’s often the most profitable. For example, you may pay significantly less in National Insurance contributions.
It does come hand in hand with added responsibility; you’ll essentially be running your own business, which means setting up a company, arranging your own insurance, finding an accountant, taking responsibility for your accounts, checking your IR35 status and making sure you’re paying the right tax.
That might sound like enough reason not to bother. But (and it’s a very big BUT), a specialist contractor accountant will be able to help, taking the vast majority of responsibility off your shoulders and nearly all of the paperwork off your desk. No prizes for guessing who we’re talking about.
Contractors often test the water by going with an umbrella company first, then move on to setting up their limited company shortly afterwards. But, if you’re committed to contracting from the word go, or have already done your initiation, then it could be time to take the plunge.
Good choice if:
- You're a freelancer working on multiple short projects
- You want to maximise your take home pay
- You’ve decided to commit to contracting for the long term
- You’re happy to take on the extra responsibility
- You have a specialist contractor accountant, like ClearSky on your side to take over the majority of paperwork and hassle
- You’re happy to manage your own finances and set aside money for tax
Not so good if:
- You don’t want any hassle or responsibility at all
- You can’t get your head around the basic principles of tax, IR35, National Insurance contributions and so on
- You want to pay tax as you earn (PAYE), instead of being landed with one big tax bill
- You earn below £35,000 a year
