Setting up a limited company can offer contractors many advantages, from greater control over tax affairs to the ability to project a more professional image to recruiters and clients.
There is never a bad time to ‘go limited’, but if you’re a contractor and are thinking of making the leap it could be in your interests to act sooner rather than later.
That’s because, in many ways, March is the perfect month in which to incorporate a company.
Allow us to explain why.
March towards tax alignment
When incorporating a limited company, your company year-end will usually fall on the last day of the month in which you incorporated.
That means if you were to set up your business today, your company year-end would fall on 31 March.
With the current tax year ending on 5 April, that would ensure the closest possible alignment between your company year and the tax year.
Assuming you don’t draw any company dividends during the first few days of April, there would then be symmetry between your personal tax and your annual company accounts.
That would make life easier when it comes to calculating your personal tax liability and submitting your personal self-assessment tax return (or asking your accountant to do so).
Get set for the new tax year
Assuming you are currently employed and have been for the whole tax year, setting up a limited company during March wouldn’t mean that you have to automatically file a personal tax return for the current tax year.
That’s because, under HMRC rules, you will normally only have to file a tax return for a tax year if you have received income that hasn’t already been subject to income tax.
Therefore, if you are new to limited company contracting it may be a good idea to set up your company in March with a view to trading through it once the new tax year starts on 6 April.
Starting trading as a limited company contractor from 6 April would also give you a clean slate in terms of your tax affairs for the new tax year.
Get advice on setting up a limited company
Here at ADVANCE we are experts in guiding and supporting contractors through the process of setting up a limited company.
View our accountancy prices and packages for contractors, or fill in the below form to request a callback from one of our specialist contracting advisors: