Operating through your own limited company as a contractor has several potential advantages and disadvantages. The main advantages include paying less income tax than being employed or self-employed, having limited liability protection for the director, and being able to claim a wider range of business expenses. However, there are also additional administrative costs and time requirements associated with running a limited company. Contracting through a limited company may not be worthwhile for contractors expecting to work short-term or earning a lower income. Overall, incorporating is most advantageous for contractors earning higher amounts, but it does not suit all situations.

1. ADVANTAGESAND DISADVANTAGES OF RUNNING ALIMITED COMPANY
There are manycontractors whooperate throughtheirownlimitedcompanyprimarilybecause
workingthiswayismore tax efficientandthere are manyotheradvantagestoo,as well as
disadvantages.
Contractorsor freelancerswhoare ona lowerincome,perhaps£25,000 per year,or whoare caught
by IR35, or who onlyintendtocontract fora shortperiodof time mayfindthat runningtheirown
limitedcompanyisnotworthitand opt forumbrellatype arrangementoroperate asself-employed
instead.
The main advantagesof operatingthroughyourownlimitedcompanyasacontractor are:
 Higherpersonal remuneration –due tothe abilityof beingable totake yourincome asa
mixture of salary anddividendsyouwillpaylessincome tax thansomeone whoisemployed
or self-employed–dependingonyourcontract rate thiscouldbe hundredsorthousandsof
poundsof extraincome everyyear.
 Professionalstatus –yourcompany’sprofessionalstatuswill increase once youstart
contactingand yourcompanymay be heldinhighregard goingforward.A differencein
perceptionwillstemlargelyfromthe factthat companiesare monitoredmore closelywith

2. more statutoryobligationsandreportingrequirements. Theiraccountsandcorporate details
can alsobe viewedonthe publicregisterbyotherbusinessesandindividuals.
 Limitedliabilityforthe director –one of the biggestbenefitsof creatingyourowncompanyis
limitedliabilityprotectionforthe director.If thingsgowronginthe future yourpersonal
assetsare secure asa limitedcompanyisaseparate legal entityinitsownright –unlessyou
personallyguaranteedabankloan(there are also otherexceptionshere whenadirectoris
foundguiltyof wrong-doing).
 Claimona widerrange of expenses –anycostthat you can classas a businessexpenses
attributable tothe businesscanbe claimedasbusinessexpenses.Throughyourown
companyyoucan claimfora widerrange of expensesincludingtravel,phone,internet,
accountancyfees,software,equipmentandmore.
 You are incontrol of yourowncompany’s affairs-bothfinancial andadministrative.
 Tax efficiencyandplanning –the company’sCorporationtax rate iscurrently 19% (17% from
1 April 2020). The personal tax rate for the employedandself-employedvariesbetween20%
and 45%. The basictax rate on dividendsis7.5%.
 Splittingincome –whenyouhave yourowncompanyyoucouldtransfersome sharesto your
spouse oranotherfamilymember.
 Protectionof a companyname –as companynamesare unique andnotwo are the same
once you have startedyourowncompany itsname isunique toyou.This isnot the case with
self-employment.
 Deferringincome intothe future –whenyouoperate throughyourowncompanyyoudecide
whatsalary anddividendsare tobe paidand youhave the optiontodeferinto the future
the drawingsome of the post-tax profit.If youdecide todo thisyoucan draw thisundrawn
profitina future tax yearwhenperhapsthe directorhas onlyworkedpartof the yearand
his/herincome nthatyear islowerthanusual.Thisismore tax-effective thandrawingall of
your income inthe yearthat itis earnedandpayinghigherratestax on the amountthat falls
inthe higherratestax band.
 Credibility –havingyourowncompanywithaprofessionalcorporate image will add
credibilitytoyourbusiness.Certainrecruitmentagencies inthe finance andITindustries will
only engage withincorporatedcompaniesandthisisusuallydue tothe riskinvolvedinthe
contracts that theyoffer.If youwill be dealingwithsensitive informationorlarge scale
contracts the clientwill requestlimitedliabilityprotectionfromcontractorswhotheyoffer
contracts to and thistype of workwill notbe offeredtothe self-employed,therefore a
companycan improve itscompetitive edge.

3.  Pension –a company providesthe opportunitytoinvestpre-tax tradingincome into a
companypensionscheme asopposedtoinvesting intoapensionschemepersonallywith
income whichispost-tax personal income.
The main disadvantagesof operatingthroughyourownlimitedcompanyasa contractor are:
 More administrationtimeandcostsinrespectof book-keeping,filingrequirementsetc.
 Beingresponsible foryourcompany’saffairsandmeetingvariousdeadlinesanddue dates
each year–evenif youraccountant looksafterthese foryou.
 Additional costsinthe formof accountancyfees,certainfilingfeeswithCompaniesHouse
and anyone-off incorporationfees.
 It isnot the best stepif you onlyplanto contract fora few monthsbefore returningtofull
time employmentasitmayprove more costlythan beneficial.
 If you provide yourcontractingservicesviayourlimitedcompany,the IR35legislationcould
applyto relevantassignmentsif youhave nottakenthe appropriate actiontocomplywith
these rules.The financial costsof beingcaughtbyIR35 are significant
A final thoughtisthatwhile contractingthroughyourowncompanyisnot for everyone,itdoessuit
the majorityof contractors, and the more that an individual earnsthe more advantageousitisto
incorporate.Some agencies alsoonlyoffercontractstolimitedcompanycontractorsandif you
provide servicesinthistype of marketyoumaybe more likelytosecure acontract withyour own
company.