Save the date for FCSA Forum 2024 – Tuesday July 2nd in London


A Limited Company Guide for Freelancers

An introduction to limited company

One of the questions you should ask yourself when setting out as a contractor or freelancer is, which option best suits me?  Umbrella employment, limited company and sole trader all offer different benefits so it’s important that you understand each before making a decision.  If you intend to freelance as a career, or at least for a significant period of time, then running your own limited company could provide what you need to further your career as a freelancer.

Once you’ve set up your own company, you are a director and shareholder of that business and are thus responsible for it.  You must ensure the company meets all of its statutory obligations, including the proper completion and filing of the company’s accounts and returns each year, and there is a level of administration that you will need to commit to as the owner of the company such as liaising with your agency or client regarding contracts, invoicing, and paying yourself and the tax man.

There are however many benefits to working this way.  Setting up a company offers far more flexibility to run the business the way you want to, provides the opportunity for compliant tax planning, allows for your own brand identity and potentially offers increased levels of pay.  Furthermore, engaging a reputable accountant will often ease the additional administrative burden significantly.

The decision to operate this way should not be taken lightly as once incorporated, your obligations as a director begin and unlike umbrella, you cannot simply resign and walk away from the company; there are year-end and sometimes, monthly and quarterly obligations that must be met.

Running a business is not for everybody, but if your circumstances suit, it could be well worth your time considering.  This guide is designed to help you better understand the benefits, and the burdens (for lack of a better word), of running your own limited company.

The main benefits of limited company for freelancers

Whilst it is more administrative and requires more of a commitment, there are many benefits to trading via your own limited company.

Your own brand

Running your own business allows you the freedom to develop and market your own brand identity.  For many, this is a pivotal step in building a career in the freelance sector and often provides more credibility in business than the umbrella employment solution might.

Potential for increased levels of pay

This is dependent on a variety of factors such as IR35 status and whether your business is registered for VAT (amongst other things). These will be determined for the most part by your industry, your contract and your working practices.  For more information, contact any of the FCSA Accredited Members listed at the end of this guide.

Compliant tax planning

As the director of the business, you’ll control how and when your limited company pays you.

Wider expense allowances

You’ll determine the expenses that you require to perform your contract role and these can extend to company assets such as laptops, printers etc.  Most umbrella companies do not allow such expenses.

Understanding Limited Company

When you choose to work via an umbrella employment solution, starting up is simple. The umbrella company will explain the process, complete ID and right to work checks, and issue an employment contract for you to sign.  In contrast, setting up a limited company is significantly more time consuming – you are creating a new business, not joining an existing one.

Most reputable accountancy providers will guide you through this process and many will be able to incorporate the company for you. So whilst it is more administrative, many accountants will (with your permission) take on some of this burden for you.

In addition to setting up the company, you will need to open a business bank account and depending on your circumstances, PAYE and VAT registration may also be required.  Again, your accountant should take you through this.

Once set up is complete and you have started trading, you can start to invoice and receive payment into your limited company’s bank account.

So, how do you pay yourself?

As a director, there are three ways you’ll take money from your limited company; 1) salary, 2) expenses, and 3) dividends (if you are working outside the IR35 legislation).

  1.  If you intend to take a salary, you or your accountant will need to register the company as an employer with HMRC. The company will pay Income Tax and National Insurance (both employees and employers) on the salary it pays you.
  2. Expenses you incur on behalf of your company, or in the performance of your duties, you may reclaim from your company.
  3. Finally, if you are working outside the IR35 legislation, as a shareholder you may take a dividend payment from the company. A dividend is a payment from the company to its shareholders out of the available profit.  Importantly, if there is no profit after considering the company’s liabilities, then no dividend payments should be made.

Money drawn from the company may or may not be taxable, depending on the type of payment, and your other income.  We recommend you choose an accountant that can assist with personal taxation, as well as the formal accounts and tax return that the company has to file each year.

Choosing an accountant

It’s important that you choose the right accountant and any of the FCSA Accredited Members that offer limited company accountancy services (listed at the end of this guide) will be able to offer a compliant, robust and efficient service.

There are certain services that accountants are not allowed to offer, so it’s important you understand the difference between compliance and non-compliance.

Accountants are not allowed to ‘manage’ your company for you. Any services provided to your business must be limited to traditional accountancy services.  For example, an accountant must not:

  • Receive money from the agency or client on your behalf and then pay you;
  • Manage any aspect of your business;
  • Negotiate contracts;
  • Charge you based on your company’s income;
  • Own or control any part of your business or your business bank account.

Next steps

If you are considering the limited company option, or any other route for that matter, please feel free to contact any FCSA Accredited Member.  We represent hundreds of thousands of freelancers and are best positioned to offer compliant and impartial advice, with no obligation. We are here to help.


This guide was written by JSA Services Ltd in conjunction with the FCSA Marketing Team.