why do contractors have a limited company

viztopia

Registered User
Messages
171
I met someone today who is looking to set up a limited company and go down the contracting route. He read on a website the on average contractors pay tax at 22% rather than the high rate. He referred me to the website and it does say this but in my opinion its rubbish.

My question however is, why would someone have a limited company rather than remain as a paye worker?
 
Perhaps you could give the link. There are various debates to be had about the merits of contractor companies. Clearly if the director can keep there wage below the 41% band then there is a benefit from a tax viewpoint but it may be a timing difference in the long run.

Revenue have cracked down on the issue of expenses. With 12.5% tax and 33% CGT the benefits are not as good as they used to be.
 
It's to do with the business that is contracting them in. They don't want to end up with Revenue telling them that contractors have become full-time employees and they don't want the additional cost of employers social insurance (especially as they now get nothing for it). Therefore many will only engage contractors through a limited company, even if that company only has one employee.
The contractor still has to pay income tax on the income that they take from their own company as they are PAYE employees of their own business. If they leave money in the business it's profit and they pay corporation tax on it. If they later take that money out they will still pay income tax. Therefore you are right; it is rubbish.
If the state accepted that people who contracted for over a year were still contractors and not employees then none of this would be necessary. Instead there's some expense and lots of hassle piled onto the contractor.
 
Back
Top