So you’ve decided to make the jump from employee to a contractor/freelancer – great! But before you set up your limited company, it’s important to take note of a few essential points to remember – all of which revolve around the singular fact that you are now a separate entity from your business.
You Need a New Bank Account
With a limited company, you’ll need to open a new, independent account for the business to use. It’s surprising how often this can be overlooked, but for legal and tax reasons (and keeping a handle on your own finances vs. the business) you must keep company money separate.
If you’re switching from umbrella company into a limited company, it’s important to let your clients know. In the ensuing email, call or letter, be sure to let them know new payment details rather than your own personal account to save confusion down the line.
Dividends & You
The profits retained by a limited company are subject to paying dividends, drawn out by a shareholder – which is simply you in the first instant. This is a great way to supplement your salary to help prevent having to ‘scrape by’ in the early months of trading. Just be sure to remember, however, that dividends can only come from profits and not any money saved aside for tax or costs.
The Money in the Bank isn’t Yours
Simply put, any money in your business bank account isn’t yours – yet, anyway. Whatever you pay yourself or the dividends drawn out from the account are yours once they’re taken out, but everything else belongs to the business.
Register for VAT
If you previously went without registering for VAT, now is the time to change that. A company that charges VAT from the start is likely to be taken more seriously by competitors, clients and prospects. There’s also the chance – with the Flat Rate Scheme – to make VAT work in your favour.
Get an Accountant!
You’ll have been able to get by before setting up your limited company doing your own books, but now you’re running the show, it’s important to have some support to take care of the financial implications of running a company – including dividends, VAT registration and tax returns. As you’re no longer just looking after your own finances, but your business’ too, you’ll find it becomes an overwhelming task quite quickly.