Limited Company Guides

The optimal salary-dividend split typically involves taking a salary at the National Insurance threshold (£12,570 for 2024/25) and drawing the remainder as dividends. This approach minimizes National Insurance contributions while maintaining tax efficiency. However, the exact split should be tailored to your personal circumstances and discussed with your accountant. Learn more about salary-dividend splits.

Setting up a limited company involves registering with Companies House, choosing a company name, appointing at least one director, and registering for Corporation Tax with HMRC. You'll also need to set up a business bank account and register for PAYE if you plan to pay yourself a salary. The process typically takes 24 hours via online registration.

Setting up a limited company can cost as little as £12 for online registration with Companies House, or around £40 for same-day incorporation. Many formation agents offer packages for £100-plus that include additional services. Some accountants offer "free" company formation when you sign up for their accounting services. Compare formation options.

Limited companies can claim legitimate business expenses including office costs, professional subscriptions, travel and subsistence, professional indemnity insurance, accountancy fees, and business equipment. However, expenses must be "wholly and exclusively" for business purposes. Working from home contractors can claim a proportion of household bills. Keep detailed records and receipts for all expenses claimed.

While not legally required, using a specialist contractor accountant is highly recommended. A contractor accountant understands IR35, can optimize your tax position, handle your annual accounts and tax returns, and ensure compliance with HMRC and Companies House requirements. The cost is tax-deductible and the time saved and potential tax savings typically far outweigh the fees. Find a contractor accountant.

Dividends are payments from company profits to shareholders. They're taxed at lower rates than salary and don't incur National Insurance. To pay dividends legally, your company must have sufficient retained profits, you must hold a directors' meeting, issue dividend vouchers, and declare the dividend. Dividends are typically paid monthly or quarterly alongside a small salary. Tax rates are 8.75% (basic), 33.75% (higher), and 39.35% (additional) for 2024/25.

IR35 is tax legislation designed to identify "disguised employees" - contractors who work like employees but through a limited company. If caught by IR35, you must operate under PAYE tax rules, losing most limited company tax benefits. For private sector contracts, the client determines your IR35 status. Factors include control, substitution rights, mutuality of obligation, and working practices. Read our comprehensive IR35 guides.

Yes, you can draw a salary from your limited company even during periods when you're not actively contracting or trading. Many contractors maintain a low salary throughout the year (often at the National Insurance threshold) to maintain their National Insurance record and qualify for state benefits. However, ensure you process payroll correctly through PAYE and have sufficient company funds. Learn about salary during gaps.

Your limited company must file annual accounts with Companies House (within 9 months of year-end), a Corporation Tax return with HMRC (within 12 months of year-end), and confirmation statements annually. As a director, you must also complete a personal Self Assessment tax return reporting salary, dividends, and other income. Missing these deadlines results in penalties. Most contractor accountants handle all these filings as part of their service.

While your limited company can legally buy property, it's generally not tax-efficient for your main residence. Companies pay Corporation Tax on rental profits, Stamp Duty at higher rates, and extracting property value later creates additional tax charges. Instead, use retained profits to pay yourself dividends for a house deposit. Some specialist contractor mortgages accept limited company accounts and retained profits as income proof. Explore property purchase options.