Setting Up A Ltd Company...good or bad idea?

Hyp3rion

Hi all.

I have recently been asked to do a 5 day contract for the DWP via an agency. Problem is I am already in full time employement and i have hit a snag on the way the agency is going to pay me. As i do not have a p45 to submit to them i have been told that the earnings from this contract would be subject to emergency tax which would cost me around £900.
They have suggested that if i had a friend who had a ltd company they could pay them and my friend and I could work things out from there.
I have been thinking for some time now to try and break away from my employment and go it alone and this might be a good time to start, but is it a good idea for me to set up a ltd company just for this work i am due to do with the possibility of extra work in the future comming my way or would i be wise not to do this?
If its OK for me to setup a ltd company where on earth do i start?

Many thanks
Mike

Astaroth

There is another P form that prevents emergency tax and is exactly for situations where someone is employed by more than 1 company.

There are many companies that will enable you to setup your Ltd company online for somewhere around £35 and they handle the rest for you.

Ultimately the process of actually creating the Ltd company is the easy part though... you really should be getting advice from an accountant etc before doing this to make sure it is the best route for you.

Hyp3rion

Thanks for the quick reply.
I will investigate things further for sure, any of these online companies you can recommend as there seems to be quite a few?

richt71

I've used this company http://www.company4less.com/ to form 2 companies but they specialize in electronic formations (online and send to you via email) so you'll need to print a couple of certificates off for your bank if you're setting up a business account.

WHA

Astaroth wrote: »

There are many companies that will enable you to setup your Ltd company online for somewhere around £35 and they handle the rest for you.

Most of the cheap on-line formation agents just deal with the Companies House formalities which is really the easy bit - just a few on line forms. The harder bit which they don't cover is setting up the employers PAYE scheme, registering for VAT, if beneficial, completing forms for registering for corporation tax, opening a limited company bank account, taking out insurance to cover the limited company assets and activities, considering whether to pay yourself salary or dividends, working out what expenses can be legitimately claimed, working out corporation tax bills, preparing payslips and/or dividend vouchers. This is why you should be talking to an accountant.

Regarding emergency tax, depending upon your other income, you may be liable to tax at either 10%, 22% or 40% and also potentially national insurance. Assuming your other earnings use up your tax free personal allowance, it will have to be one of the above. In fact, if they put you onto the normal "emergency" tax code of 503K week 1, you will probably not pay enough tax as that includes a weeks worth of tax-free personal allowance to which you aren't entitled if it is already being used on your other job.

Even if you start a limited company, you are likely to be paying at least 19% tax on the profits, even if all taken out as dividends, so you need to compare 19% from a company, or say 22% from employment under PAYE, and factor in the costs of forming the company and the time/costs of all the other company administration activities. I would say that unless you are really likely to do a lot more through the company in the very near future, the costs and hassle are just not worth it.