Maximising your income is a topic of interest to almost everyone.
We all want to ensure we pay towards vital public services whilst earning enough to support ourselves and enjoy life. In order to help you maximise your earnings, you should carefully plan how you obtain your income from your contracting work.
You may not have any plans about how you could improve this, but by engaging with a specialist contractor accountant, you will be able to explore how you could potentially maximise earnings in a compliant manner.
One available option that could give you more control over your financial affairs is by operating through a limited company.
What is a limited company?
A limited company is a private commercial structure, incorporated with Companies House, which is the UK’s business registry. This creates a distinct legal entity to run your contract work through. For contractors, switching to a limited company may well be a valuable move indeed. Here’s some of the main ways you can use a limited company to improve your financial efficiency.
Tax savings
As mentioned, one of the major benefits of operating through a limited company is the potential to maximise your income. After your company formation, this can be achieved through the creation of an effective tax plan to help improve the company’s financial efficiency.
As a contractor operating through a limited company, you may be able to claim additional expenses that were not previously available to you as a sole trader, and you will be able to use different ways in which to extract cash from your business.
In certain circumstances, contractors can receive income from their PAYE salary and extract additional income using dividend payments, which can increase your take-home pay – although this should be discussed with an accountant.
What are dividend payments?
Dividends are payments that can be made from retained profits to company shareholders. They can be made as frequently as the company decides. The company profit in this instance is determined after the deduction of all relevant expenses, including PAYE and relevant taxes.
Dividend splitting
Dividends are payable to any of the company shareholders. Although the low salary, high dividend strategy can be a major benefit to working through a limited company, there are a number of other tools in the accounting toolbox to secure more of your income.
Expenses
So, you’re probably thinking “I can already claim expenses as a sole trader”, and whilst this is true, you could claim more business expenses now you have your limited company.
Whilst potentially being able to claim for a wider variety of expenses may sound like more hassle, many software accountancy packages allow you to image your receipts to keep track of your expenses more easily. These captured images can then be sent online to your accountancy company in real time to help ensure all of the available business expenses can be identified and claimed for. This means your accountant can help ensure you are claiming the correct expenses.
And if everything up to now hasn’t peaked your interest then check these other potential benefits of contracting through a limited company.
You could be missing out on flat rate VAT entitlement, making pension contributions, entrepreneur’s relief and investing money which is just sitting in your bank account. This could save you considerable amounts of money and only adds to the additional tools you already have at your disposal in your financial plan.
It’s pretty clear that contracting through a limited company has some potential benefits depending on your specific situation. By reading this post and exploring how operating in a slightly different way, you are becoming a financially savvy contractor.
So, if you’re ready to improve your income efficiency then we’re here to provide excellent customer service and support. We are a specialist contractor accountancy firm for contractors such as yourself so if you want to find out more simply email info@gorillaaccounting.com or give us a call on 0330 024 0406 to discuss how our low monthly fee accountancy service can help you.
