What is a Limited Company?
A Limited Company is owned by its shareholders and run by its directors. If you are opening your own Limited Company, you are both a director and shareholder, as well as its employee.
A Limited Company is a legal entity in its own right. In other words, it has its own legal rights and obligations. That means any profits and losses belong to the company; so, the business itself can continue regardless of the death, resignation or bankruptcy of any shareholders or directors.
A Limited Company offers limited liability. The company (as its own legal entity) is liable for its debts. The shareholders and directors are not personally liable. Their liability is limited to paying to the company what they have agreed to pay for their shares.
Why Does a Contractor need an Accountant?
Some contractors will find very little difficulty in handling their finances and remain happy to take care of everything themselves. That’s fine. Others, however, rely on an accountant to take care of all the confusing stuff and keep their business profitable. Alongside the tax expertise offered by a qualified accountancy firm, a specialist will be aware of specific rules and regulations which affect the contracting industry, particularly IR35. This legislation on its own is a minefield, and if your contract work is caught, your take-home pay will be vastly diminished.
There are several other pieces of legislation which may affect you, including the MSC legislation, Agency Workers Regulations, and Section 660. Without a solid knowledge of these rules, as well as the ability to keep on top of your day-to-day accounting duties, you may well struggle to keep on top of your accounts.
What is IR35?
IR35 is legislation that was introduced to combat tax avoidance by individuals who supply services to clients through a limited company, when they are doing the same job and operate under the same constraints as an employee, this is known as” disguised employment.”
This legislation states that contractors who are in fact “disguised employees” should be subject to the same Income Tax and National Insurance Contributions as any regular employee rather than the tax breaks and benefits associated with a Limited Company.
For example, if you receive paid holiday and sick pay from your client yet still operate through a Limited Company, this will be deemed as “disguised employment,” and you will be liable for the same tax as an employee.
What Do I Pay Tax On?
- Money you earn from employment
- Profits you make if you’re self-employed – including from services you sell through websites or apps
- Some state benefits
- Most pensions, including state pensions, company and personal pensions and retirement annuities
- Rental income (unless you’re a live-in landlord and get less than the rent a room limit)
- Benefits you get from your job
- Income from a trust
Interest on savings over your savings allowance
When do I Need to Charge VAT?
You must register for VAT if your VAT taxable turnover goes over £85,000 (the ‘threshold’), or you know that it will. Your VAT taxable turnover is the total of everything sold that is not VAT exempt.
You can also register voluntarily.
Do I Need PAYE?
As an employer, you normally have to operate PAYE as part of your payroll. PAYE is HM Revenue and Customs’ (HMRC) system to collect Income Tax and National Insurance from employment.
You do not need to register for PAYE if none of your employees are paid £118 or more a week, get expenses and benefits, have another job or get a pension. However, you must keep payroll records.
Do I Need to Pay HMRC?
Every month you must pay HMRC the tax and National Insurance (and any other deductions) you owe as reported on your Full Payment Submission (FPS) in the previous tax month. Minus the reductions on any Employer Payment Summary (EPS) you sent before the 19th in the current tax month.
You must pay what you owe by the 22nd of the month (or the 19th if paying by post) – you may have to pay a penalty if you do not.
What are the Benefits to a Limited Company?
Private Limited Companies that are privately owned businesses, referred to as a Limited (LTD) Company.
- Greater Tax efficiency
- Distinct Entity
- Limited Liability
- Professional Status
How Much does a Contractor Accountant Cost?
The Average fee for having an accountant can range from £30-£180 per month. The costs vary based on the requirements needed by your company.
M J Kane provide extremely competitive prices on all our fees.
If you would like to learn more about our prices, contact a member of our team today.
What does ‘Inside’ and ‘Outside’ IR35 mean?
If you are inside IR35 you will need to operate through an Umbrella Company or seek a different contract. This is due to the payments relating to that assignment needing to be accounted for using the IR35 regulations. This means you will be charged Tax and NIC charges as you are deemed to be employed.
If you are outside IR35 it is business as usual. You can operate through your limited company and you can continue to receive your dividends from the company without deduction of additional tax and NIC
When do I Pay my Income Tax?
The tax year runs from the 6th April to the 5th April the following year.
he first payment on account for the tax year ending the following 5 April is due on the 31st January.
If you have a second payment on account due for the tax year ending the previous 5 April it is due for payment on the 31st July.
It is worth remembering that not everyone has to pay these payments on account
What is VAT charged on?
VAT is charged on things like:
- Business sales – for example when you sell goods and services
- Hiring or loaning goods to someone
- selling business assets
- Items sold to staff – for example canteen meals
- Business goods used for personal reasons
These are known as ‘taxable supplies’. There are however, different rules for charities.