The smart way for UK contractors to structure their earnings
Limited companies are a smart way for contractors to structure their earnings in a more tax-efficient way than self-employment allows. Let’s take a look at why you should use a limited company.
What a limited company could mean for you
- Limited liability if you're the director
- Tax-efficient earnings
- The ability to claim expenses that relate to the business
- The ability to retain earnings in the company for more tax-efficient distribution
Corporation Tax in the UK rates are lower than personal tax rates and the limited company gives the director flexibility in terms of when and how they draw out their earnings.
It is also important, however, to structure things in a way that maximises tax and operational efficiency.
How to structure your limited company affairs
- Set your salary at an optimal level – this is fundamental to reducing your tax liability
- Claim allowable expenses through the company
- Register for Flat Rate VAT (FRV)
- Contribute a portion of your income to a Pension
- Maximise your dividend payments up to the higher rate tax threshold
- Invest any retained earnings in the company
- Keep the retained profits in the company for as long as possible
We’ve been advising contractors on the most tax-efficient ways they can use their limited companies since 1995. With our knowledge and experience, you can rest assured that your affairs are in safe hands.