For many years, running a limited company was almost the default option for contractors. Having your own company can bring reputational benefits you don’t get as a sole trader and there are some tax advantages.

Unfortunately, some of these tax advantages - like the size of the tax-free dividend allowance - have been eroded over the last few years. And IR35 rule changes have made it much harder for many contractors to operate through limited companies.  

In this same time, some of the costs associated with running a limited company have increased.

So is it worthwhile staying limited? Would you be better off using an alternate arrangement like an umbrella company? This mini-guide will help you decide.

Accountancy costs

As a limited company Director you have a legal obligation to file annual accounts.

You can do this yourself, but it isn’t easy. And it’s usually more cost-effective to use an accountant while you concentrate on other areas of the business.

For regular accountancy support, most accountants charge a basic monthly fee. This support can vary significantly, but basic support packages can cost £50 per month, while more expensive contractor packages can run to £150 or £200 per month.

Bookkeeping software

HMRC’s Making Tax Digital initiative means that limited company contractors have to use compliant software to pay certain taxes. Currently, this only applies to VAT-registered limited companies, but the scope of the policy will grow to include more companies in the next few years.

Many contractors choose to purchase approved software through their accountant, benefiting from access to the software and accountancy support, but you can buy the software by itself.

Contractor favourite FreeAgent costs £14.50 per month, while the standard package for Xero costs £26 per month.

Bank account costs

If you run a limited company you are legally obliged to have a business bank account. This is because a limited company is a separate legal entity and you need to keep company money separate from your personal funds.

There are all sorts of business bank accounts available. Some claim to be ‘free’ but will charge you for certain types of transactions. Other accounts won’t charge you for most transactions, but to come with a monthly or yearly fee.

A standard monthly fee would generally be between £5 and £25 depending on the type of account.

Companies House costs

Another legal obligation for limited companies is that they’re listed on Companies House. To get listed you pay an upfront fee of £12 online, followed by an annual confirmation fee of £13.

Thinking about switching to an umbrella company? Speak to a member of our team to learn more. Call: 01625 544 460.