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| COMPANY SET-UP |
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Why should Contractors Form Limited Companies?
As a contractor you will not conform to the Inland Revenue definition
of a 'self employed' person. This means that you will either
have to operate through a limited company or else the agency, from
which the contract is obtained, will be legally obliged to treat you
as an employee and deduct tax and national insurance from your earnings.
Most contractors opt to work through a company for the following reasons:
- Greater independence
- Rates of pay are usually higher
- Income is received by the company without any deductions
- Tax deductible trading expenses are higher than for an employee
- Financial flexibility
- Control over the timing of remuneration
- Potential tax and national insurance savings
Initial Steps:
1) Form The Company
There are several ways in which a company can be formed. The most
common routes are through a company registration agent or through
an accountant or lawyer.
If you have time on your side you can normally choose your own name
and specify the objects of the company. The company will then be created
to your own requirements within about two weeks.
If you don’t have a lot of time to spare. Most registration agents
and some accountants and lawyers carry “shelf” companies,
which can be provided at a moment’s notice. These companies can
later be tailored, at extra cost, to your own specifications, including
change of name.
The charge for our company formation service includes all advice given
as to the appointment of company officers and shareholders and completion
of the initial registration forms for VAT, PAYE and corporation tax
purposes.
Documentation Received
1) Certification of Incorporation: As indicated by its name, this
is more or less the birth certificate of the company. It sets out
where and when it was incorporated, and its registered number. The
certificate of incorporation is required to be displayed in a public
place at the registered office of the company (normally your home
address).
2) Memorandum & Articles of Association: This is the constitution
of the company. This will set out the objects for which the company
is formed, its powers on conducting its day-to-day business, and will
indicate the capitalization of the company and the original subscribers
to the company. Copies of the Memorandum & Articles of Association
are normally given to the companies bankers, the Inland Revenue, the
accountants, and may be requested by any other individual who intends
to invest in or finance the company, or rent premises to the company.
Spare copies should be kept at the registered office.
3) Statutory Books: These normally comprise various registers to be
maintained recording the statutory affairs of the company, e.g. registers
of shareholders, directors etc and minutes of all meetings of the
shareholders of the company.
Statutory Forms
1) Appointment of Director & Secretary (Forms 288): Each company
is obliged by law to appoint two separate individuals to the statutory
posts of director and secretary. In contracting companies the director
will normally be the contractor himself. The secretary will normally
be the spouse or other close friend or relative of the contractor.
The secretary will be required to sign several statutory and tax returns
of the company, including the financial report of the company, and
therefore it is important that he/she should be close to the contractor.
2) Notification of Registered Office (Form 287): The company is required
to notify a registered office. This will be the statutory address
of the company and may be different from its trading address. All
formal statutory correspondence and some tax correspondence will be
addressed to the registered office of the company. The registered
office will normally be the home address of the contractor. However
it is worthwhile noting that the registered office of a company must
be within the country of registration, and for this purpose Scotland,
Ireland and England and Wales, are separate countries.
3) Issue of Shares (Form 88-2): The shareholders are the owners of
the company and a company by law must have at least one shareholder.
Normally the original share(s) will held by the registration agents,
and transfer forms in respect of these will be received on acquisition
of the company. The share(s) will then be transferred to a director.
In some circumstances it is adequate to leave the company with one
shareholder, but in other circumstances it will be advantageous to
issue further shares in the company.
4) Notification of Accounting Reference Date (Form 224): The company
must notify the registrar of the date to which it intends to draw
up its financial statements. In most circumstances this will be the
month end closest to one year after commencement of the contract.
However in some circumstances the contractor may wish to nominate
an accounting date for other personal reasons (e.g. spouse’s
business having a particular year end).
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