The pros and cons of contracting through a Limited Company as an IT Contractor

When considering IT contracting as a career path, many find that operating through their own Limited Company is the best option, as it can add a certain level of credibility to your level of professionalism, and shows your serious about your career as an IT contractor. However, it’s important to understand the pros and cons of setting up and running your own Limited Company, and whether it’s right for you.

In this blog we’ll do just that, to help you decide if forming your own Limited Company is the right decision for you.

Advantages of running a Limited Company as an IT contractor

Limited Liability

Typically, the first concern new contractors have is that it could all go wrong When first starting out you may be considering what could go wrong, and what you would be personally liable for if the worst were to happen. Over our decades of experience as a contractor accountant, it has occurred very rarely. But just in case it does, registering a Limited Company will provide limited liability. This means that you and your Limited Company are distinct legal entities, so if any unforeseen issues arise, your personal assets are protected from business-related debts or liabilities.

Tax Savings

Incorporating your business as a Limited Company can lead to substantial tax savings. By taking a small salary and receiving the majority of your income in the form of dividends, you can benefit from a more tax-efficient structure. Dividends are subject to different tax rates and are not subject to National Insurance Contributions (NICs), resulting in higher take-home pay. By speaking to your trusted expert IT contractor accountant you’ll be able to find the perfect mix of salary plus dividends, to make the most from your tax status.

Expense Claims

As a Limited Company IT contractor, you can claim a wide range of business expenses which will reduce your company’s overall tax liability and maximise your take home pay. These may include marketing costs, stationery and postage expenses, accountancy fees, mileage costs, and even pension contributions.

It is easy for contractors to make errors whilst attempting to claim legitimate business expenses, but fortunately, our team here are able to guide you on expenses and what you’re able to claim before you part with your cash. Get in touch with them today to find out what you’re able to claim.

Professional Credibility

Lastly, operating through a Limited Company can enhance your professional image and credibility. By incorporating your business, you may gain access to more lucrative contract roles that you otherwise might not have been able to take, as some suppliers perceive being limited as more credible, reliable and professional. By legally establishing your business, you’re showing you’re serious about your career as a contractor, and that you’re filling a skills gap, and not just a temporary gap.

Disadvantages of a Limited Company

Admin and paperwork

Running a Limited Company involves additional administrative responsibilities, such as tax payments and filing paperwork with Companies House. As director of your company, you have a legal obligation to ensure that all statutory documents are submitted on time to Companies House, meaning it’s up to you to do so promptly. Failing to do this can be a criminal offence. But that’s where having the right contractor accountant comes into play! Our team here at SG keep their clients on the straight and narrow, by reminding them what needs to be done and when, and helping them ensure the right information is over to HMRC and Companies House in a timely manner. With SG by your side, you’ll never miss a deadline.

Time-Intensive

Managing the accounts of a Limited Company can be complex and time-consuming. Understanding tax rules, regulations, and compliance requirements can be a steep learning curve.

However, you don’t have to face the challenges that come with setting up a Limited Company alone. You can alleviate some of the stress and ensure you are being compliant by enlisting the services of one of our expert contractor accountants. If you’re ready to start your IT contracting journey, email us, or call us on 01962867550 to learn more about our services.