Limited Company FAQs

A limited company is a separate legal entity from its owners (shareholders) and directors. It allows you to operate as a business rather than as an individual, giving you greater control over your income, tax planning, and financial structure.

When you set up a limited company, you become both a director and a shareholder. Your company invoices clients for your work, and you pay yourself a salary through PAYE and take additional income as dividends. This structure can offer tax efficiencies compared with operating as an umbrella employee or sole trader.

• Tax efficiency: Limited companies can often reduce tax liability by taking income as a combination of salary and dividends.

• Professional image: Operating through a limited company can improve your credibility with clients.

• Control over finances: You decide how and when to pay yourself, giving flexibility for planning and investment.

• Limited liability: Your personal assets are usually protected if the business runs into financial difficulty.

• A limited company may suit you if:

  • You plan to contract long-term or earn above the IR35 thresholds.

  • You want more control over how your income is paid and taxed.

  • You’re comfortable managing accounting and administrative responsibilities, or willing to hire an accountant.

  It may be less suitable if:

  • You only take short-term or occasional contracts.

  • You prefer a simple, hands-off approach to taxes and administration.

1. 1. Choose a company name and register with Companies House.

   2. Appoint directors and shareholders (can be the same person).

   3. Set up a business bank account in the company’s name.

   4. Register for taxes, including Corporation Tax and, if applicable, VAT.

   5. Manage payroll and dividends according to regulations.

An accountant can handle much of the paperwork and ensure compliance with HMRC.

Yes. Limited company directors can claim legitimate business expenses such as:

• Travel and subsistence

• Professional subscriptions

• Equipment and software

• Training

Claiming these correctly can reduce taxable profits, but all expenses must be “wholly and exclusively” for business purposes.

Running a limited company comes with statutory responsibilities, including:

• Filing annual accounts with Companies House

• Submitting a Corporation Tax return to HMRC

• Maintaining accurate records for VAT (if registered)

• Running payroll and paying PAYE and National Insurance on salaries

• Distributing dividends correctly and reporting them to HMRC

An accountant can make this process much easier.

Most directors pay themselves a small salary through PAYE and take additional profits as dividends. This combination is usually the most tax-efficient approach, but the exact strategy depends on your earnings, personal allowance, and other income.

If you’re considering whether a limited company is the right choice, browse our Accountants Directory for specialist contractor accountants who can advise on setting up and running a limited company.