6th February 2020
With the introduction of the IR35 reform in private sector contractors with a potential risk of being deemed inside IR35 will be asking if trading through a limited company is still a feasible option. We are here to give you seven reasons why it’s worth sticking with the limited company trading vehicle.
Our clients often call us and ask what to do; many are thinking that the only way forward is to take up permanent employment. Our advice is before you make a rash decision, talk to your accountant and go through your options.
Here are some questions to ask to evaluate your circumstances:
- My current contract is deemed inside IR35. Do I want to continue with this contract? Are they offering me permanent employment?
- Am I better off being permanently employed, or should I seek another contract so I can keep benefiting from trading through my limited company?
- Should I try finding a contract in the private sector? What are my chances of finding a new contract, how competitive is my field of expertise?
The short answer as to whether the Ltd company option is the way to go is often still yes, and here are a few of the key points as to why:
1. Still the most tax-efficient way of trading
As opposed to being permanently employed, as a director of your own limited company, you are in a greater degree of control of your income and the way you extract it from your company, which allows you to retain more of your earnings.
Although this control is diminished to an extent when your contract comes under IR35 (because your income is taxed as if it was salary), operating via your limited company can still be advantageous. Particularly so where you have multiple contracts and retain the ability for those contracts outside of IR35, to decide upon the split of salary and dividends, to take advantage of the more beneficial tax rate that applies.
2. Flexible pension contributions & tax savings
Worried about the future, and pension contributions? You may not have known that your company can pay into a pension fund for you and save on corporation tax at the same time? Talk to a financial advisor about your options. We are happy to recommend someone if you are interested.
3. Benefits from claiming expenses & VAT
Have a lot of expenses? Your limited company can pay for all your business expenses, and in return, these help the company pay less corporation tax. If you are VAT registered and buy equipment or services, you can recover the VAT to help lower the company’s VAT bill.
4. Enjoy full employment benefits just as you were in employment
We have covered this topic in a blog of ours here. The article explains how you are still entitled to maternity or paternity pay. Your company can even pay for childcare, and yes, you still have holiday entitlement. It doesn’t mean you have to work 24/7 just because you are running your own company.
5. Increased employability (multiple contracts at the same time)
Having a company will make you more desirable in the job market as well. Company’s look for contractors, because they are cheaper, and give greater flexibility than employing people.
Also, chances are, if you worked on multiple contracts in the past, you have a more extensive experience
Of course, there is the question of job security, some contracts maybe only for 3 or 6 months, but equally, these are more than often extended. And who says that you are safe in permanent employment anyway.
6. Training and development (claimable)
Dream of expanding your knowledge and your horizon with it? Most of the related costs, such as tuition fees are tax-deductible expenses. Are you working on a project with other people? Why not have them join you in your company, and then they can enjoy the benefits as well.
7. Run your own business and build your own brand
In employment, you don’t generally have a say in what projects you are assigned to, whereas with your own company you can pursue the type of work that really interests you.
You can go as far as to develop your own product. If this is your ambition, there are several government grants and tax credits available to take advantage of.
We hope that these points above have helped decide your future direction. If you have questions, please give us a call, and we can advise you based on your individual circumstances. Feel free to contact us on 0800 917 9100 or send an e-mail at firstname.lastname@example.org.