10 tips for setting up your limited company as a contractor
If you’ve decided to take the leap into contracting in 2022, congratulations! It’s a big, exciting step and you’re probably buzzing with ideas for your new business. That being said, there are some basic things you should have in place at the get-go to keep things running smoothly further down the line.
So, what do you need to get started? The Kingsbridge team has pulled together our top 10 tips for getting the ball rolling on your limited company as a contractor.
1. Choose the right company structure for you
First things first, you should be certain that a limited company is the right option for you. It might be that you prefer the idea of being a sole trader so you should brush up on the differences between the two and decide. A sole trader has less admin but more financial liability, while a limited company contractor has more tax efficiency but also more hoops to jump through. Assuming though, for the sake of this article, that you decide to become a limited company contractor, there are a few more things to do…
2. Check your choice of company name is available
You probably have a company name in mind but it’s important that you check if it’s available as there are rules for business names in the UK. For instance, it can’t be the same as, or too similar to, an existing business name. Companies House will contact you if they think your chosen name is too close to an existing one, but you can always run a search of their website to see if the name you have in mind is taken.
3. Consider your registered address
Your registered address will be available on Companies House for anyone who searches your business, so it’s good to think about this carefully if you don’t plan on having an office outside of your home. Do you want your home address linked to your business? Do you want it to be publicly searchable? If the idea of this bothers you, but you don’t want to rent a physical office space, a virtual office could be a good solution. For a small monthly fee, you get the use of a business address and there are usually extras available such as post forwarding, call answering and room hire.
4. Register on Companies House
This is the important part: registering your company makes it real. It costs £12 to register with Companies House and usually takes around 24 hours for registration to complete. You’ll need to create a new Government Gateway user ID and password for your business too, as you can’t use your personal one.
5. Register for VAT
You have to register your business for VAT if its VAT taxable turnover will be more than £85,000. However, you can also voluntarily register if your turnover will be below that amount. It’s up to you to decide what is best for your business, although it’s worth noting that some clients prefer to work with VAT registered businesses.
6. Set up a business bank account
When you’re operating as a limited company, your personal finances are separate from those of the business, so you need to set up a business bank account to keep it that way. It is, in fact, a legal requirement. This is because the business is a separate legal entity to yourself.
7. Get to grips with your tax requirements
There are some more tax considerations as a limited company contractor. Your business is liable for Corporation Tax, employer’s National Insurance contributions (NICs) and if you’ve registered for it, VAT. You personally will continue to pay income tax and employee’s NICs – although how you pay these will depend on your IR35 status – as well as dividend tax on any dividends you pay yourself.
8. Who are your company officials?
You must have a company director by law and this would usually be you, the contractor. This makes you the person legally responsible for running the company. You may also choose to appoint a company secretary, although this is not a requirement. Some companies choose to have a company secretary so that they can take on some of the director’s responsibilities – which could be useful if you’re going to be busy with work on contracts.
9. Consider the share structure
You need to have at least one shareholder who can be the director. You must provide information about your shares when you register your business. Most companies opt for ‘ordinary’ shares which means that directors get one vote on company decisions per share and receive payments of dividends.
10. Get your insurance ducks in a row
Yes, we know it’s not up there with choosing the company name in terms of excitement, but setting up your contractor insurance is a major step as it demonstrates to HMRC that you’re genuinely self-employed, while showing to clients that you’re ready to take on work. Of course, you don’t want to spend ages working out what types of cover you need and buying them all individually, which is why Kingsbridge have put together their contractor insurance package. This includes public liability, professional indemnity, employers’ liability, directors’ and officers’ liability, and personal accident cover, all in one handy suite of insurance.