Limited Company

Many contractors or freelancers who may initially have been umbrella, or in some cases ‘Sole Trader’ may find that setting up a Limited Company can offer the best long term solution for a number of reasons. There are three types of these in the UK which are: Private Limited Company (Ltd); Public Limited Company (PLC) or a Community Interest Company (CIC). A CIC is a structure used for community organisations and PLCs allow you to sell shares to members of the public. Both are not relevant structures to contractors – so we will focus on a Ltd Company below.

The advantages of Limited Companies

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So, you’ve just won your first contract and your agency is asking you for the details of your UK limited company. What do you do; should you setting up a limited company? How do you know whether the limited liability company route is best for you, or would an alternative trading option be better? There are advantages and disadvantages to running UK companies. It is your personal circumstances, your career plans and aspirations and the nature of your contract that will determine the right trading option for you. You may also find that the decision is taken out of your hands, and that your agency or client insists that you set up a limited company before they will even do business with you.

UK limited company advantages

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A limited company needs to pay for corporation tax based on its income and profits. The limited liability company should have a PAYE or “Pay As You Earn” system which is responsible for collecting income and paying for the income tax as well as remit contributions for the National Insurance from its employees which includes the company directors.

Using a self-assessment system, the LLC should be able to compute how much corporation tax should be paid. An accountant and an auditor are needed to handle such computations to avoid penalties.

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A limited company is a company where the liability of the share holders is limited. It is the most popular type of organization in the UK, as well as worldwide. The reason for its popularity is that the company and the owner are treated as two different entities in the eyes of the law. The owner’s personal wealth and assets are totally separate. In case it faces any kind of financial crisis, the property of the owner is safe. In case of bankruptcy, the shareholders are liable to pay only the amount that is unpaid on the shares, which is usually zero.

Limited Company: Types

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