Disadvantages of limited company contracting
Contracting through a limited company will give you the best chance to maximise your pay retention legally. However, it can also be hard work due to the added responsibilities of being a limited company Director. We have put a list together of the most common disadvantages of limited company contracting. We hope you find this information useful.
IR35 legislation puts a spanner in the works
Contracting through a limited company has historically always been the best way for contractors to maximise their pay retention legally. However, IR35 legislation puts a spanner in the works.
If you are working on assignments outside IR35 – you’re free to benefit from the combination of salary and dividends. However, if you’re inside IR35 – the fee-payer in the supply chain is responsible for making tax and National Insurance Contributions to your salary – before it’s paid to you. Therefore, contractors inside IR35 may as well use an umbrella company. And, to make things worse – the introduction of legislation referred to as off-payroll in the public and private sectors has taken control away from contractors – because they’re no longer able to determine their own IR35 statuses*.
Here us out here – on our advantages of limited company contracting page, we write about how easy it is to run a limited company. And this is true if you already have great knowledge on the responsibilities of being a limited company Director, or you plan on hiring a specialist contractor accountant to help you.
If you’re new to contracting in the UK, you may be concerned at the amount of rule and legislation in place. Setting up a limited company is simple in theory, but you’ll have many responsibilities to ensure you keep HMRC happy. Compared to contracting through an umbrella company – limited company contracting is very complex.