Being a contractor presents a diverse range of opportunities and choices to you. Opting to start your own limited company and become a company director is just one of those – but can you manage it?
As a contractor, you’re already your own boss, and having the added responsibility of a limited company is a huge step to take.
It goes without saying that embarking upon the limited company journey is a big challenge, and you have to be a powerhouse master in self motivation to be able to succeed at it. However, being a company director does have perks which make up massively for the stress of being the top dog - depending on what you consider beneficial to your career.
Firstly, clients are more likely to come knocking on the door.
Under your own limited company, you can expect prospective clients to view you in a more positive light, and your business will have higher overall credibility because it conveys a more professional image than perhaps that of a sole trader. This is a huge plus-point if you’re planning on doing business with larger companies or if you’re just starting out as a contractor. However, it isn't advised to jump on the limited company bandwagon if you're new to the contractor game, as it can take a lot of adjusting to. You're much better off testing the waters first and trying out a few different styles of working before you visit this option.
Another benefit of directing your own company is that you will likely be paying much less tax than those in permanent jobs. Therefore, more opportunities of great flexibility are offered by limited companies when it comes to your profits and your own personal income.
As mentioned before though, there are a lot of aspects of being a director that should be carefully taken into consideration before diving straight into the deep end.
The director is solely and completely responsible for everything involved in the company. This means taking control of all business-related administration, accounting, payroll and the general day-to-day business errands. It’s also vital to think about your legal duties and restrictions, as directors must manage the company's affairs in accordance with its Articles of Association of Law.
The Companies Act 2006 states that "a director should act within their powers to promote the success of the company, exercise independent judgement, take reasonable care, use skills and diligence while avoiding conflicts of interest and not accepting benefits from third parties."
In essence, this means that a director should act within the interests of the company's shareholders.
As well as all of the general duties, a director must ensure that accurate accounts and various other documents are filed at The Companies House on time; as well as being responsible for ensuring the correct amounts of tax, VAT and NI contributions are paid on time.
These include; accounts, annual returns, notice of a change in director/s and any changes of your registered office. Along with this added pressure, you must legally prove that you are genuinely self-employed and not merely a disguised employee. This means that an IR35-friendly contract is required, with the working practices to match. If you’re unable to provide this, you are lawfully obliged to pay full national insurance and taxes like any other company would, whereas under regular limited company rules, you should be able to avoid such payments.
Financially, if you are able to verify self-employment status, a limited company is much more advantageous for contractors. Tax planning opportunities exist which can be tailored to your circumstances and you can therefore deliver significant tax savings.
This is where a contractor accountant can be the difference between a business flourishing or failing.
It is strongly recommended that you use a contractor accountant to help you prepare your company's accounts as it can prove to be a minefield trying to keep on top of everything. But ultimately, the responsibility for ensuring these duties are carried out in the right way lies with you as the director.
On the bright side however - due to the structure of limited companies - you won’t be held liable should things take a wrong turn financially. A limited company is a legal entity in its own right; so this means that everything from the company bank accounts, to the ownership of assets, are totally separate from its shareholders and you as a director.
Evidently, being the director of your own limited company is not a walk in the park. It takes dedication, determination and a bucket-load of commitment. All of this added to the mix of already being a busy contractor can seem overwhelming; so it’s a lifestyle choice that you have to make after some serious consideration.
Starting your own limited company is one thing; but being the director, and potentially having people work for you is an entirely different responsibility. Having your own body of staff comes with more complications, and is usually the catalyst to figuring out what kind of management style you like to lead with.
When you’re an owner of a business, you are accountable for everything that goes on – which can be a frightening thought for some people. You may not have many employees, or any at all for that matter; but even the general day-to-day upkeep can be chaotic.
If you’re a contractor who runs a limited company or you're thinking of taking the helm anytime soon, we’ve got some tips and advice that might just help you cross the barrier from ‘standard company director’ into ‘best business owner of all time.
Provide Constant Feedback
Knowing what has worked and what hasn’t, is a huge aspect of running a company. If you have employees or accountants who work alongside you, it’s crucial that you make them aware of this. Keeping everyone up to date with company-related news is a must – if you don’t, people will fall behind and mistakes are more likely to be repeated.
Be Caring And Attentive
Whilst nobody wants to be around a pushover, they also don’t want a soulless heart of stone. You need to find a happy medium between the two; and the best way to do this is by picking your moments of when to be tough and when to be attentive. A company director should be caring of those who work for them and around them. Even if your particular style if more stand-offish and you like to leave your employees to be as independent as possible, a little bit of a nudge from the boss can really drive a team to be at their best consistently.
Ensure You Are Ultra-Organised
Being organised goes way beyond making a daily to-do list. As a company director, you sometimes have to deal with a million problems at once and make imperative decisions. If you have an accountant, you have the freedom to let your administration be passed onto someone else. But if you don’t, you’ll need to learn to prioritise and delegate the big jobs in order to get everything done to the best standard.
Set Yourself Targets
To constantly push yourself to achieving the next goal, you have to set yourself regular targets, like the majority of people do in any job. If there is something you’re always working towards, you will always be motivated and focused on getting better results. Which is the general gist of owning a good business, right?
Make Work Enjoyable
Of course it isn't necessary for you to push the boat out, playing games and singing songs all day long, but nobody wants to be in an environment that’s too dull or overly repetitive. To keep your colleagues and employees content, you should make a point of having a laugh when it’s appropriate. Don’t take yourself too seriously when working with others; if you can make work more than just work, it’ll go a long way for your business as well as your management prowess.
Value And Reward Those You Work With
If you’re a contractor who has a team of other contractors working for you - or an accountant - it’s important to make them aware that they’re valued. By having regular incentives or rewards, you’re pushing them to continue bettering themselves in their role; even if it means just taking them on a quick visit to the pub after a long week in the office. It’ll also give you a bit of an ego-boost and rake in the boss brownie points.
The most important part of any job is communication. You should ensure that those who you work with feel comfortable and confident enough to engage with you whenever they need to by making them feel at ease in their job. Another good way to communicate is to ask open questions, and check in regularly with others.
Hand in hand with good communication, comes honesty. It’s pretty self-explanatory, but by being honest and open with everyone involved in your typical work day, you create more room for standards to be raised and relationships to grow. If something hasn’t quite gone to plan, it’s important to let others know so you can work together to rectify it.
You might also like: 6 Ways To Deal With Tricky Internal Stakeholders
Setting up your own company can be the most rewarding endeavour of your life; but it clearly isn't an easy feat. At KnowNetwork, we can offer a variety of bespoke benefits and give you advice on all things contracting; and helping you to succeed in acquiring those three special 'LTD' letters at the end of your company name is just the tip of the iceberg. Our job is essentially to make your job easier.
The way you work, your lifestyle and the different experiences you have within the field are all components of what makes a limited company a success.
There are both pros and cons to setting up a limited company; but it all counts on your preferences and abilities as a person. Limited companies aren’t necessarily suited to those with hectic lifestyles or those who are particularly unorganised.
You have to be 100% dedicated to the role, and be prepared for things to be a little tricky before the success can start. KnowNetwork can help you as a contractor in more ways than one, whether you're just starting out, or you're an experienced contractor. Take a look at our free memberships and what we can offer you here.
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