The steps required to set up a contractor limited company are straightforward. In this guide, the following details are included:
In this post we also evaluate the differences between a standard accountancy practice and an accountancy practice dedicated to servicing contractor limited companies.
When setting up a limited company for contract work, the procedure is as follows:
Choose a company name– a contractor is free to choose the name of their company as long as the name does not sound or read like another company’s name and as long as it contains no “sensitive” terms.
Choose a company address– a contractor limited company must have its own correspondence address which is a physical address in the country of registration and which is not a PO Box number.
Appoint a director or directors– there must be at least one director who is over 16 and has not been banned by the Court from being a director. Each director must provide a service address at which they can receive correspondence.
Create and distribute shares– shares determine the ownership of a contractor limited company. Those who hold shares will normally have the right to vote on and agree to proposed changes within a company. There must be at least one shareholder and there is no maximum number of shareholders.
Upon registration, shareholders will present a “statement of capital” which shows the number of shares a company has, the total value of those shares, and the division of ownership between the shareholders.
Create a Memorandum of Association– this is a legal document signed by the shareholders resolving to form a contractor limited company.
Create Articles– this is a set of written rules about company governance signed by directors, shareholders, and, if applicable, the company secretary.
Template Memorandum of Association and Article documents can be downloaded online.
If there is to be more than one shareholder or director who is actively building the business, most solicitors advise that a partnership agreement would be advisable in case of dispute between the shareholders.
When setting up a limited company, a contractor who has followed the six steps above must then register the business with Companies House. Upon successfully registration, a company number is issued by Companies House and the formation of the company is now complete.
There is a Government website portal at which a company can be registered – the link is here.
Alternatively, an accountant, solicitor, or company formation agent can register the business on a contractor’s behalf.
A director is legally required to register for Corporation Tax upon receipt of a company number from Companies House. If a contractor limited company is intending to employ staff at launch or soon thereafter, the company must register with HMRC for PAYE.
When questioned, contractors who use a limited company vehicle to carry out business identify to their accountants the following benefits:
Take home pay– statistics indicate that a contractor using an umbrella firm will receive around 65% of their contract rate in take home pay after tax, umbrella company fees, and recruitment agency fees. Limited company contractors, on average, receive 80-85% of their contract rate as take home pay.
Tax efficiency– contractors using an umbrella firm are on the Pay As You Earn (PAYE) scheme against which a restricted set of expenses can be claimed back to reduce the tax they pay. Limited company contractors can claim tax back against a much wider range of products and services. Limited company contractors using flat rate VAT scheme are also able to retain a small portion of the VAT they charge to clients.
Control– limited company contractors benefit from total control over the majority of the aspects of their business. Contractors using an umbrella service generally depend on others to find them new client work, manage their paperwork, pay their taxes, and build their career.
Although umbrella contractors benefit from standard employment rights (including parental leave and holiday pay), limited company contractors choose this structure because they prefer to be in charge of the companies for which they work, the fees that they charge, and how much tax they pay.
Any contractor considering switching to an umbrella company will want to know how to find the best provider to work with.
Although you could spend your precious time and energy searching the web for the best umbrella company, there is an easier way – using an umbrella calculator.
In this guide, Umbrella Supermarket explains why every contractor should use an umbrella calculator in 2021.
If you are considering contracting you will need to decide on PAYE or umbrella.
It can be a difficult decision to make and contractors will inevitably be questioning which option will be the best for them.
To help every contractor get on the right track for them, in this guide Umbrella Supermarket looks at PAYE vs umbrella, outlining the key differences and how this will impact you.
There are many reasons that contractors across the UK opt to work under an umbrella company.
Umbrella companies offer an easy way to contract and remove the need for the contractors to worry about the burdens of admin, finances, tax and IR35, all things that limited company contractors have to deal with.
For this reason, many contractors will be weighing up their options and questioning whether it is worth using an umbrella company in 2021. To help make the decision that little bit easier, Umbrella Supermarket has put together this guide on the pros and cons of using an umbrella company.
Any contractor that is considering operating through an umbrella company in 2021 will need to understand Umbrella Company fees - from why an umbrella company charges fees, how they are paid to how much the contractor will pay.
In this guide, Umbrella Supermarket answers those all-important questions to help every contractor know exactly where they stand when it comes to umbrella company fees.
If you’ve made the decision to contract through an umbrella company in 2021, you will next need to find an umbrella company that’s right for you.
After all, there are lots of umbrella companies out there, so how do you know which one to choose?
To help you find the best umbrella company for you, in this guide Umbrella Supermarket outlines what makes a good umbrella company, so you can rest assured you’re making the right move.
One of the many advantages to operating through an umbrella company for contractors is that they become an employee of their chosen provider.
In turn, this means that the contractor will be automatically enrolled onto the umbrella company’s workplace pension scheme.
To help contractors find out more about umbrella company pensions Umbrella Supermarket has put together this handy guide.
If you are considering contracting through an umbrella company you will naturally have questions and queries over how they work.
After all, making the move to umbrella can be a big step for contractors. To help, in this guide Umbrella Supermarket explains how to get started with an umbrella company and share our top tips for using one in 2021.
PAYE or umbrella is a question asked by every contractor. Which one you opt for will have a big impact on your contracting career and lifestyle. So, it's important to make the right decision for you.
To help makes things a little bit easier, Umbrella Supermarket has put together this guide on PAYE or umbrella, outlining the key differences between each, to help you make the best and most informed decision for you.
One of the many benefits to working through an umbrella company is that you will receive holiday pay as well as a range of other statutory benefits including sick pay, maternity and paternity pay.
To find out more about umbrella company holiday pay, and how to calculate how much you will be entitled to, Umbrella Supermarket has put together this handy guide.
Contractors must make several decisions throughout their contracting careers. One big decision contractors have to make is how they will operate.
One way that contractors can work is through an umbrella company.
Umbrella companies have become an increasingly popular way to contract in the past few years, offering many benefits to the contractor. But, how do you know whether this option is right for you?
To help every contractor make the right decision for them, in this guide, Umbrella Supermarket explains when not to use an umbrella company.
There are tons of benefits to using an umbrella company, which is why they have become such a popular option for contractors in recent years.
After all, an umbrella company takes away the stress and hassle of operating through a limited company whilst offering contractors a range of advantages, such as statutory rights, paying them a salary, deducting correct tax levels and National Insurance, and taking care of tasks like expense processing and invoicing.
However, as more and more contractors opt to use the services of an umbrella company, more providers have started to claim that they are HMRC approved.
To bust the myths around HMRC approved umbrella companies and get straight to the facts, in today's guide Umbrella Supermarket look at whether HMRC approved umbrella companies really exist, so you know exactly where you stand.
If you're considering making the leap to contracting, you will understandably want to know how much you will have to pay in umbrella company costs. After all, this amount comes directly out of the contractor’s pocket, so it’s important to be clued up on how much you should expect to pay.
To help contractors, in this guide Umbrella Supermarket answer the all-important question of how umbrella companies cost in 2021.
