Contracting through your own Limited company

Once you have secured your contract, what are the next steps?

1. Form your own Limited company

Simply choose your company name and form your Limited company online, appoint yourself as the company director and shareholder, if you are a ‘one person’ Limited company your company will be formed within a few hours. Thankfully over the last few years the government has simplified the formation process in an attempt to encourage new businesses.

Once your company has been incorporated you will then need to forward on your certificate of incorporation to your end client or agency.

2. Set up your business bank account

A Limited company is treated as a separate entity from you the director and it has to be clear that the money from the company is separate to your own personal account. 

With your new Limited company you’ll need a company bank account for your client to pay you into. Getting a business bank account takes a couple of weeks so it’s best to do it as soon as possible to ensure you don’t incur any delays in getting paid. Unlike personal banking, most business banking is chargeable with the bank often charging a fixed monthly fee and or charges per transaction. Many banks offer the first years banking free and then charge after. If you want to find out more about business banking - Cater Allen who offer free business banking, click here to find out more.

3. Register your company for VAT

Registering your company for VAT entitles you to reclaim the tax you have been charged when purchasing goods for your company. Most contractors working through their own Limited company choose to register for the Flat Rat VAT Scheme (FRS). FRS is a special incentive introduced by the government to simplify tax. You would charge 20% on all invoices (or whatever the prevailing VAT rate is), but pay back the HM Revenue and Customs at a lower rate, with your company keeping the difference as extra profit. The scheme is simple enough but it would be advisable to have a chat with an accountant to understand exactly how it works and what lower rate you should pay back at.

4. Do you need Professional Indemnity Insurance?

As with any profession, if you provide a service, you could potentially be challenged for the work you have done. It is therefore advisable to have cover; some clients will mandate levels of cover and also different professions attract different premiums. Click here to find out about Professional Indemnity Insurance.

5. Appoint an accountant

Appointing an accountant will help save you time, stress and worry when managing you tax affairs allowing you time and energy to concentrate on your contracting career. Whilst managing and running your own Limited company you will have questions on topics such as tax, dividends, expenses, and bookkeeping, so it’s best look into a contractor accountant who won’t charge you for every phone call or email you make. It’s also best to look for an accountant that offers free meetings as sometimes, maybe not all the time, it is handy and helpful to be to discuss things face to face.  There are many accountants who specialise in dealing with contractors and will be able to provide specialist advice.