Choosing to begin as a contractor with a limited company is the most feasible way of adhering to the tax guidelines. 1st Contact realises the need of our contractors for proper documentation and an efficient limited company set up.
What is a Limited Company?
A Limited Company can be described as a business concern which has an individuality of its own and runs on its individual name. It can encounter liabilities and debts, can make profits as well as pay taxes just like a person would normally do.
A bank account is maintained by the limited company because the payments are received in the name of the company and not in the name of a person and therefore have to be deposited into the company account. The company is registered in the official list of companies which is kept by Companies house.
How to get started
Decide on a name for your company but think of a general name and not something that relates to your field of business because in the future if you wish to venture out into other waters, the name may not be suitable then. It is also necessary to work out who you would like to involve in your business.
The number of people you take in as shareholders will have an equal amount of dividends distributed among them. However, the case may be different if a preferential share division system is used. The government is still pondering upon the ‘Income shifting’ legislation that will enable the distribution of dividends according to the services offered to the company.
Distribution of shares
You can have any number of shareholders in your company but if there are only two members, it would be advisable to have another member in case of a disagreement on a subject. Shares can be of various types such as the preferential shares which are bound by company rules that reflect the company’s method of functioning. If you are going to opt for this type of a share, it will be sensible to consult a professional because it may involve tax propositions.
Registering at Companies House
After having made the initial decisions, you can register your company with Companies House. You will be told to assign a company director and a company secretary but remember that the chosen director must have knowledge of legal proceedings.
Memorandum of Association
A Memorandum of Association also has to be filed with Companies House, stating why you have set up the company and how you intend to run it. This document can be of great value during legal actions and tax disputes, most essentially in an IR35 case. Use professional advice before you file a memorandum.
Using the services of a specialist
It would be common sense to hire the services of a company formation specialist because a specialist can recommend various tax structures and important points to be included in the memorandum.
Hiring an Accountant
An accountant may costly but you will receive an accurate guidance of how to set up the limited company, VAT registration, bank account referral, corporate tax registration apart from which your payroll and taxes would be managed too.
Opening a Bank Account
Banks may be suspicious of new companies and may harass you about your credit rating. It would be feasible to deal with a bank where you already have an account or get an accountant or a company formation specialist to provide a reference for you.
VAT Registration
It is better to register with HMRC online. You may receive a delayed VAT registration but it will save the tedious paperwork process. You could however get an accountant to do this for you.
Claiming Start-up expenses
You can claim your start-up expenses from future revenue.
1st Contact has a strong team of accountants and specialist advisors to help contractors formulate an appropriate business set up that abides by the relevant law. They are open to any discussion you may like to have, with amiable staff that are always available.
1st Contact Tax offers specialist tax services to contracting professionals.
These services include: Contractor Accounting, Contractor Umbrella payroll, Personal Tax for Contractors, Limited Companies for Contractors and Contractor Financial Advice.