Establishing a Limited Liability Company to Perform Contract Work

Contractors must typically incorporate LLCs. Many contractors discover that creating their own LLCs is the best and most tax-efficient way to conduct business. By incorporating an LLC, you may reduce your tax responsibilities and protect your personal assets.

When contracting, why is it necessary to form a limited liability company?

A large segment of the workforce consists of lone proprietors. However, this is an uncommon choice for contractors since businesses are nervous of being labeled as “employers” by HMRC, which would have severe tax consequences under IR35 law if the government agency determined that the contractor was in fact an independent contractor. One major reason is that sole proprietors have limitless liability and, as a result, usually pay more in taxes than other business structures.

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If you form a limited company, you increase your chances of being recruited significantly while providing your firm with tax benefits and legal safeguards.

Making a limited liability corporation do contract work is easy.

Choose a name for your business.

You get to decide what your firm will be called, within some guidelines. The name you choose must finish in either “limited” or “ltd.” and may not include any inappropriate or insulting terms. It’s important to be original since Companies House will reject any name that’s the same as or too similar to an already existing business.

Independent employees shouldn’t put their names on the company. Otherwise, you may be an employee under IR35. HMRC will verify that you’re a contractor and not an employee trying to hide income. Using a corporate name emphasizes that your company is different from its owner. Go to: if you are having trouble registering your company name.

Pick a location for your business.

If you don’t have a physical office, you may use your home or the location of your accountant’s office as your business address. If you want to receive corporate mail, your mailing address must be in the same nation as your business.

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Elect a Board of Directors

When you form a limited liability company as a contractor, you will be its only director. On the other hand, you could decide to start a company with a few close friends, in which case you would all choose to serve as directors. Whoever you choose to fill the position of director must be capable of making important decisions, completing annual reports, and ensuring that the firm pays its share of corporation tax. Company secretaries are optional as most bookkeepers are also accountants.

Shareholders and organizational structure

In most circumstances, you’ll be the sole shareholder, but if there are many directors, each may be a shareholder. Count each person’s portions. Each shareholder will get a dividend payment according to the number of shares they own.

Register Your Business with “Companies House”

Now that you have everything you need, you may register your business with Companies House. Fill out Form IN01 to register either online (for a charge of £12) or by mail (for a fee of £40). The online registration procedure takes 24 hours and includes incorporation tax registration. A separate registration for corporation tax must be submitted within three months after submitting your application if you want to register by mail, which might take up to ten days. After completing the registration process, you will be issued a certificate of incorporation.

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Get your business off the ground by opening a bank account.

A limited liability company must have its own bank account since it’s autonomous. The bank you choose will need your business’s Companies House number, names, ages, residences, and National Insurance numbers of all directors.

Sign up for Value-Added-Tax

If your taxable sales exceed £85,000, you must register for VAT. If it benefits your company, you may do so voluntarily. You can recoup some of the tax you pay on goods and services if you register for VAT. Some customers, lenders, and suppliers may prefer a well-established company.

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