For most long-term Contractors, forming a limited company is the most tax efficient way of working if you are outside of IR35 legislation and you are a high earner.
As a Director of a limited company, you will have complete control over the day to day affairs of your business – but you also have legal responsibilities. You will need to complete annual company accounts, as well as your own self assessment. You can offset the cost of business expenses and losses against your tax liabilities, further lowering your annual tax bill. You can control how you combine salary and dividends to pay yourself (as long as you are outside IR35).
You can still be ‘deemed’ employed under IR35 legislation if your relationship with your client resembles that of an Employee/ Employer but your Company will suffer the financial consequences by having to pay employed levels of tax and NIC on any fees paid by your client, to your company.
A Limited Company is also valuable if you wish to give the impression, when applying for large contracts, that you are not just a one-man-band. A Limited Company with a ‘respectable’ registered address can help give a good first impression.
If you are Limited Company Contractor (LCC) you are often called a Personal Services Company (PSC) – which means you ‘sell’ the work and services of an individual (you) or a group of individuals to an agency or client, where the PSC is owned by that individual or group of individuals.