It is a separate legal entity from its Owners. It’s responsible in its own right for everything it does and its finances are separate to the finances of the Owners, Directors and Employees.
Any profit the Limited Company makes is subject to corporation tax. The company can then share its post-tax profits with its Owners. This method of sharing profits is called a Dividend.
A Limited Company set up as a structure for a freelance professional or contractor to carry out his/her services to end clients if often referred to as a PSC (Personal Services Company)
Every Limited Company has ‘members’, people or organisations who own shares in the company. Most Limited Companies are ‘limited by shares’. The Owners responsibilities for the company’s financial liabilities are limited to the value of shares that they own but have not paid for.
Every Limited Company has at least one Director. Directors are responsible for running the Limited Company. Directors can also be owners. There are many legal responsibilities involved with being a Director and running a Limited Company.
Most Limited Companies have at least one Employee. An Employee is a person who is hired to provide services to a Company on a regular basis in exchange for compensation, i.e. a wage. Directors and Owners can also be Employees.
Apart from advantages such as limited liability, the main advantage of operating through a Limited company is that post-tax profits can be extracted as dividends instead of salaries. Dividends are not subject to National Insurance Contributions, therefore the savings can be very beneficial.
IR35 is tax legislation introduced in April 2000 designed to tax "disguised employment" at a rate similar to employment.
Where a Limited Company provides the services of a member of staff to a client (or agency) and the terms are such that without the Limited Company the member of staff would be an employee of the client, then HMRC would consider this “disguised employment”, and as such Dividend and other payments made from the Limited Company would be subject to IR35 tax treatment.
For freelance professionals and contractors understanding your IR35 status is an important aspect of operating under a Limited Company.
We offer a number of limited company services, including company formation, registrations and ongoing services such as bookkeeping, VAT returns, PAYE returns and corporation tax returns. Please click here for more information.