When to go limited, and why

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If you’ve been contracting for some time but working as an umbrella employee, you may be wondering when the right time is to make the leap to limited. The good news is that there’s no definitive time to make this decision, but you can get a good estimation through asking yourself the following questions:

  • Would you like to increase your income?
  • Do you want to be your own boss?

If you’ve found yourself nodding your head, then forming a limited company could be an ideal choice for you. We’ve put together a list of things to expect when you make the leap.

More money in your pocket

A benefit of working through a limited company is that you can take advantage of tax planning measures. Many limited company directors pay themselves a small salary, and make up the rest of their income in the form of dividends.

As a limited company director, you also have access to the Flat Rate VAT Scheme.  This is intended to simplify VAT accounting for small businesses. By doing this, you charge VAT at 20% and calculate your VAT liability at 16.5% of your gross invoice total.

In addition to this, you will benefit from a 1% discount for the first year in the scheme.

New responsibilities

One of the biggest differences to note when taking on the role of limited company director, is the number of responsibilities you will have:

  • Follow the company rules, including how to run your company
  • Keep financial records up to date and accurate
  • Tell other shareholders if you may personally benefit from a transaction your company makes
  • Pay Corporation Tax

As well as these new responsibilities, taking on the role of limited company director includes slightly more paperwork for you to complete. This may sound daunting at first, but it’s only a few minutes of your time per month. And as always, we’re with you all the way; please get in touch with us if you need any advice.

Opportunity to plan for the future


As a limited company director, you’ll have plenty of time to make plans for your future. However, as you’re no longer an employee, your pension contribution isn’t automatically deducted from your salary. It also means that you will no longer benefit from employer pension contributions. You also become responsible for manually putting money away to make up your pension.

To pay into a pension in the most tax-efficient way, take a look at the following pointers for guidance:

  • Apply for an auto-enrolment exemption from the Pensions Regulator. You are then free to pay up to £40,000 each year (2019-20) into your pension pot, up to a lifetime allowance of £1,055,000 (2019-20)
  • Pay the pension directly from your limited company, rather than from your personal funds. This means you will benefit from corporation tax savings in addition to the personal tax benefits

For more advice on how to fund your retirement, our comprehensive guide to contractor pensions contains more information.

Hiring employees

You may find that once your limited company has started to grow, it could be time to hire your first employee. You will need to consider the following:

  • Register as an employer with HMRC, within four weeks of hiring your first employee
  • Have a minimum of £5 million in employer’s liability insurance before hiring your first employee
  • Their rate of pay, which must meet the National Minimum Wage as a minimum
  • You will need to pay National Insurance contributions on their behalf, and deduct the correct amount of Income Tax

All three of our packages include the completion of monthly PAYE for an additional employee, and our Assure and Executive options offer sufficient employers’ liability insurance for complete peace of mind.

Another perk of forming a limited company is that when you decide to retire, the company will continue to exist. This can provide job security for any employees you’ve hired.

Limited liability

Once your limited company has been incorporated, it becomes a separate legal entity from its owners. This means that your finances are separate from any belonging to the company.

You are then free to trade without putting your personal property, assets and cash at risk. In the case of insolvency, the creditors can only recover funds from the business bank account, and from any other assets it owns.

Help is at hand

As a limited company director, there’s plenty to keep you busy. Although there’s a new set of responsibilities to complete, the right help can ease you into your new venture - seamlessly and stress-free.

We’ve helped thousands of contractors make the transition to a limited company director, and you can do this too. We’ve had experience in all things contracting and are well-equipped to provide the assistance you need to make things as easy as possible. To find out more, please get in touch with our Best Advice team.