Contractors: Essential Guide October 2016 | Page 4
company can also offer VAT savings under the flat rate scheme provided your company
has registered for VAT.
3 What do I need to do before setting up a
limited company?
Prior to setting up a limited company, you may need to consider the following:
1. Research the market to determine whether or not there are sufficient contracts in
your chosen area of business to warrant formation of a limited company.
2. Review your initial contract to assess whether you are affected by IR35 legislation.
The contract should include specific clauses that distinguish whether the working
practices in place will identify you as a contractor rather than a ‘disguised employee’. For example, it is a good indication that a contract is outside IR35 if there is a
substitution clause that allows you to appoint a suitable substitute to complete work
in your absence.
3. Consider registering your company for PAYE. Odiri Tax Consultants recommends
most contractors to take salary from their limited company. In order to do this, you
need to be PAYE registered. It is also a legal requirement if you intend to employ
other people within the business – for example, if you want to employ your spouse
as an administrator for your company.
4. Research the implications of VAT registration. If you expect to have a turnover
greater than VAT registration threshold, you a re legally required to register for VAT.
Please note that some businesses will also request their contractors to be VATregistered, even if they aren’t at this threshold. While there is some administration
involved in this task, it could be beneficial if you also register for the flat rate
scheme
5. Understand your obligations. Most high-street banks can help you set up a bank account, and it is possible to register for both PAYE and VAT through
the HMRC website. However, these aren’t the only administrative tasks you need to
consider. Others includes managing your:
Annual returns
Year-end accounts
RTI submissions through PAYE
Self-assessment tax compliance
Dividend vouchers and records on what dividends have been paid over any given period.
While Odiri Tax Consultants can potentially mitigate this administrative workload, you will
still need to provide all the relevant information. The time required to do this should
therefore be taking into account prior to forming a limited company.
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