Limited company - FAQ's
- How much of my contract income can I expect to take home operating my own limited company?
- Which is better, my own limited company or an umbrella company?
- How much admin time and paperwork is involved?
- What sort of expenses can I claim for?
- What if I decide to return to permanent employment?
- What are dividends and will I have to pay income tax on them?
- If I don’t trade for a month, do I still have to pay Danbro?
- What is IR35?
- If my contract is within IR35, are there still any advantages to operating my own limited company?
- How do I set up a limited company and how long does it take?
- How do I operate my own limited company?
- What insurances will I need?
- What fees do Danbro charge?
- How do I engage Danbro as my accountant?
1. How much of my contract income can I expect to take home operating
my own limited company?
Operating your own limited company allows you the opportunity for tax planning
to minimise the amount of tax you have to pay, and your dedicated Danbro accountant
will discuss all these opportunities with you. As a general rule of thumb, you
could expect to take home between 75-80% of your contract income.
2. Which is better, my own limited company
or an Umbrella company?
Both options offer their own advantages depending
on your circumstances and requirements. If you are uncertain as to which
option is best for you please contact one our specialist
business consultants.
As Danbro provide both limited company
services and an Umbrella service, you can be assured that you will be given unbiased
advice as to which option is best for you.
3. How much admin time and paperwork is
involved?
At Danbro, our services offer you the choice of spending as much or as little
time on admin as you prefer. By choosing our standard
service you
will prepare your own sales invoices and spend no more then 15-20 minutes each
month completing our simple to use spreadsheets. If paperwork and admin are
not for you, have a look at our additional
services that can remove this
burden from you.
4. What sort of expenses
can I claim for?
When operating through your own limited company, you will incur expenses that
will generally fall into two types, those incurred in performing your contract,
e.g. travel, and those incurred to administer your company e.g. accountancy
fees. It is most likely that those incurred in performing your contract will
be made out of your own pocket and will need to be reimbursed from company
funds. An expense claim form, detailing each expense, will need to be completed
to support this payment to yourself.
As a client of Danbro, you will be provided with an expenses guide to highlight the most common expenses that can be incurred by your business and to ensure expenses are claimed correctly to avoid any potential personal tax charges.
5. What if I decide to
return to permanent employment?
You can simply choose to leave your company dormant, in case you decide to go
back to contracting, or close your company down. If you chose to close your company
down, Danbro will assist you with this process at no additional cost.
6. What are dividends
and will I have to pay income tax on them?
A dividend is a slice of a company’s profit that is given to the shareholders,
which will be yourself if you operate your own limited company. Dividend income
you receive will not be subject to National Insurance contributions and will
be tax free if you are a basic rate tax-payer. You will pay 25% income tax on
the amount of dividend income received above the basic rate tax threshold.
7. If I don’t trade
for a month, do I still have to pay Danbro?
Unfortunately, you will still have to pay the monthly amount for that month.
Our accounting fee is based on a fixed annual amount, agreed in advance, for
all the work we perform for your company throughout the year. In return for agreeing
a fixed fee in advance, we request that payment is broken down into 12 monthly
instalments.
8. What is IR35?
“IR35” is
a tax legislation that affects all contractors and has to be given
serious consideration. The legislation allows HMRC to tax the contractor,
operating through their own limited company, as though they were
an employee of the end client rather than under normal limited company
rules. The legislation applies to each contract you engage upon rather
than to your actual company, so IR35 may apply to one contract but not
the next.
In determining whether or not IR35 applies to your contract, you will need to consider the terms and conditions of the contract together with your actual working practices. To determine your IR35 status, it would be advisable to seek expert advice and have your contract and working practices assessed by an expert. Please contact Danbro to discuss further.
9. If my contract is within IR35,
are there still any advantages to operating my own limited company?
Yes, even if your contract is considered to be inside IR35, there are still some
benefits that can make it worthwhile. You can still: claim 5% of your turnover
to cover company administrative costs; claim the benefit of being on the flat
rate vat scheme; claim any HMRC online filing incentives; and earn interest on
funds held in the business bank account.
10. How do I set up a
limited company and how long does it take?
You can easily form your own limited company in
a very simple five step guide, which should only take you a matter of minutes
to complete. Once you have submitted all your details, we can have your company
incorporated within 24 hours. Alternatively, contact one of our specialist
business consultants.
11. How do I operate my
own limited company?
When forming your own limited company, you will be appointed as director (and
employee) of the company and will be responsible for managing the company affairs.
The company will pay you a salary for acting in this capacity.
You will also be the owner (shareholder) of the company and will receive dividend income from the company’s taxed profits. The frequency and amount of this dividend income is decided upon by the company’s director(s).
All the cash held in the company bank account legally belongs to
the company, the finances of the company are separate to your own personal
finances.
You can extract funds from the company by a combination of the following:
- Salary – as an employee, a net salary is paid after income tax and NI deductions.
- Dividends – paid to you as a company shareholder.
- Expenses – you can claim your allowable business expenses.
Each year, the company will have to pay corporation tax on its profit where profit is calculated as the total amount of sales income earned less any business expenses incurred.
As a director of a UK limited company, you will be legally obliged to complete a personal tax return each year. Danbro can assist you with this return. In calculating your personal tax liability, you may have to pay additional income tax on your dividend income if you are a higher rate tax-payer.
12. What insurances will
I need?
When you are operating your own business, you will need to consider whether you
need, or are indeed required, to take out any business insurances such as professional
indemnity, public liability, employer liability or business equipment cover.
You should review your new contract as this may stipulate a minimum level of
insurance cover required to fulfil the contract.
13. What fees do Danbro
charge?
Here at Danbro we understand that not every client needs exactly the same degree
of service. We provide a standard service that
can be complemented with additional
services to suit your needs.
All fees are fixed and agreed in advance, starting from as little as £80
plus VAT per month.
14. How do I engage Danbro
as my accountant?
Quite simply call us on 01253 600140 and speak to one of our specialist business
consultants, or alternatively send an email to enquiries@danbro.co.uk and
one of our consultants will call you back at a time which is convenient to you.
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For further details, please contact Danbro: 01253 600141, General Enquiries: 01253 600140, London Office: 020 7836 8400 or email enquiries@danbro.co.uk or send an enquiry.
