How much ‘hassle’ is involved in running a limited company?

In guides which outline the pros and cons of contracting via different business structures, the umbrella option is usually labelled as ‘hassle-free’, whereas the limited company path is the ‘tax-efficient route’ (albeit with some ‘hassle’ involved).

But is this true in reality?

If you do decide (or are forced) to contract through an umbrella company, there is really less paperwork to handle.

As long as you’re capable of extracting a signed timesheet from your client and submitting it to your umbrella, the umbrella should take care of any admin and pay your salary each month or week, net of all taxes, the umbrella fee, and any other deductions.

It is a low-admin way to contract, assuming you use a reputable and efficient umbrella company.

If you set up as a limited company director and assuming you’re not caught by the IR35 legislation, you will typically pay less tax than your umbrella counterparts. But how much ‘hassle’ is actually involved in going limited?

Since the introduction of the off-payroll rules, many contractors no longer have the option to operate via a limited company for certain roles. Where the role is deemed inside IR35, the tax advantages of a limited company largely disappear.

However, for genuinely outside IR35 engagements, operating via a limited company can still be significantly more tax-efficient.

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I’ve run my own limited companies for the past 20 years, so I’ve seen all the paperwork and have experienced many of the typical problems you may encounter as the director of a small company.

When I started out, I was a little intimidated by the thought of ‘running my own business’ – registering for various taxes, dealing with HMRC and Companies House, finding a good accountant and opening a bank account.

But once these tasks were out of the way, the ongoing administrative burden is relatively light for most contractors.

Running your company

In terms of day-to-day and annual tasks, the main ones include:

1. Submitting your Confirmation Statement to Companies House

The Confirmation Statement provides Companies House with an update to the basic information it holds about your company.

This is a simple, once-a-year task, which is typically submitted by your accountant. As a director, you need to make sure it is submitted on time (typically within 14 days of the due date).

2. Invoicing and online administration

The typical IT contractor sends an invoice to the agent or client once per month. This is hardly a ‘hassle’.

You can make your life even easier by using an online accounting system such as FreeAgent.

With online software, you simply set up the client’s details, create and submit an invoice, and the data is automatically recorded.

Late payments can be tracked, and most bookkeeping is handled in the background.

Aside from this, you may occasionally need to chase overdue invoices or categorise expenses.

3. Completing your annual accounts

Your accountant will prepare your accounts and file them with Companies House and HMRC each year.

You must pay Corporation Tax within nine months and one day of your accounting period end.

From a practical perspective, this largely comes down to keeping your records organised and ensuring your accountant has all the required information.

For most contractors, this is relatively straightforward — often just a handful of invoices and routine expenses.

4. Paying your taxes

Most limited company contractors are VAT-registered, so they must submit quarterly VAT returns and pay VAT.

Using software such as FreeAgent or Xero, you can submit VAT returns directly via your Government Gateway account.

Setting up a direct debit simplifies the process further and provides additional time to pay.

Corporation Tax is paid annually.

As a company director, you will also need to complete a Self Assessment tax return each year by 31 January, and potentially make a payment on account by 31 July.

Read more about the taxes you’ll encounter as a contractor.

Golden rules for keeping on top of your limited company admin

It’s easy to describe limited company administration as straightforward, but it can feel overwhelming when you’re starting out.

With this in mind, consider the following:

• You are ultimately responsible for your company, not your accountant.
• Understand your responsibilities as a director.
• Know your key tax deadlines.
• Hire a reliable, specialist accountant.
• If you’re unsure about anything, seek professional advice.

Hiring a helping hand

If there is one thing that will make your life easier as a limited company contractor, it is choosing a good accountant.

An accountant will typically:

• Deal with HMRC and Companies House
• Manage your tax affairs
• Run payroll
• Prepare annual accounts

The relationship works best when you stay organised and keep your records up to date.

If your accountant uses FreeAgent (or similar software), ensure it is updated regularly, particularly at the end of each VAT quarter.

I’d recommend reading our guide to choosing the right accountant and browse our list of contractor accountants.

Also be aware of the Managed Service Company Legislation, which targets providers who exert excessive control over client companies.