Should I set up a company or not?

Should I set up a Company or Not?

There is no right or wrong answer about whether to trade as a company. In fact, to be perfectly honest it almost comes down to a personal choice for most.

What I find helpful in making the choice is to ask yourself what you’ll be doing in 2 – 5 years’ time. You can usually fit yourself into one of the categories below:

The Undecideds

There is nothing wrong with being in this category but if you are I’d probably suggest that you operate as a sole trader rather than a company.

While you’re “dabbling your toes” in the contracting world, you won’t really need the benefits that a company can offer you, and if you decide that it’s not for you, then it’s a bit more difficult to close it down.

Career Contractors

This is probably the category that is the most difficult to decide or give a recommendation on, and really comes down to how you want to run things.

In April 2017 The Government introduced new laws around having withholding tax deducted from contractors working through a recruitment firm. The law applies to you even if you operate as a company, which was a waste of time for many of our contractor companies. There is no point deducting withholding tax from a company when the company won’t end up paying tax anyway as all the profits get passed through to the shareholders.

Businesses

This is really the only category where I would strongly recommend that you operate under a company structure.

Although banks, landlords and a lot of suppliers try and get around the limited liability of the company it does still offer protection.

I quite often refer to companies as “vehicles” to trade out of. A common scenario would be where you might have two contractors (whether it’s a personal relationship as well or just a business relationship) both trading out of the same company.

Later, a new person may come into the equation and could be added as a shareholder, and there can be different percentages. For example, 40 / 30 / 30.

People can exit the company, passing the reins over to the remaining shareholders.

I talk a lot with clients about the need to keep business and personal lives and transactions separated. Sometimes its just easier to do this when you have a company.