Limited Company Service: FAQ's
Frequently asked questions about Limited companies
- 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?
Operating your own limited company allows you the opportunity for tax planning to minimise the amount of tax you have to pay, and your personal 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.
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.
At Danbro, our services offer you the choice of spending as much or as little time on admin as you prefer. By choosing our Connected service you will prepare your own professional invoices, record all out of pocket expenses and upload company bank statement easily and conveniently using Iris OpenBooks online accounts. If paperwork and admin are not for you, have a look at our alternative services that can remove this burden from you
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.
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.
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.
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. Only in special circumstances will we consider reducing the monthly fee payable.
“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.
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; and earn interest on funds held in the business bank account.
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.
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.
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. At DANBRO you can add business insurances to your accounting service for as little as £20 plus vat per month.
Here at Danbro we understand that not every client needs exactly the same degree of service, so we provide a range of services to suit your needs. All fees are fixed and agreed in advance, starting from as little as £75 plus VAT per month.
Quite simply call us on 01253 600140 and speak to one of our specialist business consultants, or alternatively send an email to firstname.lastname@example.org and one of our consultants will call you back at a time which is convenient to you.