Is Limited Company Right for You?
The Pros and Cons of Choosing a Limited Company When Contracting
It doesn’t matter what industry you’re in, if you’re a contractor, you’ve probably thought about the possibility of setting up a limited company. There are pros and cons of going limited, which is why it’s something that a lot of professionals consider. Along with a whole host of benefits - such as increasing your take-home pay and having limited liability protection - there are a few disadvantages that come with contracting through a limited company, which is why it’s not something to rush into.
At Go Limited, we understand the appeal of setting up a limited company as a contractor, but we also know that considering both sides of the coin is important. Though you’re likely to find going limited to be beneficial, you need to know what downsides you could be faced with. It’s a lot easier to navigate the process of setting up a limited company when you know what to expect from all angles.
The Advantages and Disadvantages of Setting Up a Limited Company for Contracting in the UK
There’s a lot to think about when it comes to knowing how to set up a limited company for contracting, and it’s not something people tend to jump straight into. Before you decide that contracting through a limited company is right for you, you need to consider the pros and cons. There are a lot of benefits that come with setting up a limited company, but that’s not to say there isn’t a downside or two.
What are the Advantages of Setting Up Your Own Limited Company?
Limited Company Take Home Pay is Higher
When you are contracting through a limited company, your take-home pay tends to be slightly higher, compared to if you’re self-employed or working as a sole trader under an umbrella company. This is due to the tax-efficient way business profits can be withdrawn; instead of all of the business’ profits being used as taxable income, limited company contractors can take a combination of salary and dividends.
Limited Companies Look More Professional
If you ask a lot of clients, customers and other businesses, they will tell you that limited companies look more professional than sole traders and freelancers. They’re often viewed as being more trustworthy and successful, potentially opening doors to higher value contracts and more work. That’s not to say that you can’t look professional as a sole trader or contractor, it’s that some people prefer to work with a limited company, rather than an individual.
You’ll Have Limited Liability Protection
When you set up a limited company, you become the director of that company. As the director, your personal finances are separate from your business. If your limited company incurs debts - for example, if your business takes out a loan and then can’t pay it back - your personal assets, such as your home and savings, are generally protected. This isn’t the case if you’re operating as a contractor, as you and your business are classed as one entity.
Setting Up a Limited Company is Tax Efficient
When you set up a limited company for contracting, you benefit from it being a more tax efficient way of approaching business. Limited companies benefit from lower corporation tax rates compared to income tax for sole traders, reducing how much tax you’re liable to pay. There are also opportunities for claiming allowable expenses and other deductions, which aren’t always available if you’re a self-employed contractor or freelancer.
You’ll Have Full Control Over the Business
Contracting through a limited company gives you full control over how your business is run, which isn’t the case if you choose to work for someone else. You have control over your business’ operations, finances and growth, as well as the day-to-day decision making.
As you can see, there are a whole host of benefits that come with going limited, which is why it’s a route a growing number of contractors are taking. But, that doesn’t mean there’s not a disadvantage or two.
What are the Disadvantages of Setting Up Your Own Limited Company?
There are a few downsides that come with setting up your own limited company - such as how there’s more administrative duties to think about and how directors have more legal responsibilities - but don’t let those put you off.
Limited Companies Require More Administration
One of the main downsides of setting up a limited company is the additional administration that’s required. Running a limited company tends to involve more paperwork - such as filing annual accounts, submitting corporation tax returns and maintaining accurate financial records - than what’s required of a sole trader or freelancer. This can be time consuming, which is something to consider if you choose to handle the administration side of things yourself. It’s also important that your administration is accurate, which can be tricky if your finances are complex.
Limited Companies Have Additional Costs
Though there are definitely tax savings that come with setting up a limited company, there are also additional costs to factor in. This includes accountancy fees, business insurance and the cost of setting everything up on Companies House. You’re unlikely to have these costs as a sole trader or freelancer.
Directors Have Legal Responsibilities
Setting up your own limited company makes you a director, and there are set responsibilities that you have as a director. For example, you’re responsible for making sure the business complies with laws and regulations in the UK, as well as being responsible for submitting accurate financial data.
The Financial Benefits of Limited Company Setup for Contractors
When it comes to exploring the benefits of limited company status for contractors, there’s bound to be a huge focus on the financial side of things. This is because setting up a limited company for contractors offers several financial benefits that can positively impact your income.
Minimise Your Tax Liability
Setting up a limited company can help you to minimise your tax liability. You can do this by taking a lower salary and making up the difference in dividends, which are taxed at a lower rate than income. You can also use a limited company to minimise your tax liability by claiming allowable expenses, such as travel, equipment and working from home costs.
Plan for Your Retirement
You can make contributions to a personal pension scheme directly from your limited company, reducing your corporation tax liability, whilst also helping you to save for the future.
Increase Your Earning Potential
When you have a limited company, you keep a higher portion of your earnings, compared to if you were operating as a sole trader. You also have the benefit of appealing to a wider client or customer base as many people prefer to work with limited companies over freelancers, simply because limited companies are generally seen as being more trustworthy and professional. By appealing to more people, you make more sales.
Utilise the Working from Home Allowance
If you have set up a limited company for contracting and you work from home, you can utilise the working from home allowance. This is when you claim a proportion of household expenses under the working from home allowance, which are then tax deductible. Though you can only claim for part of your working from home costs, it does benefit you financially by reducing your tax liability, helping you to save money.
Tax Implications of Operating as a Limited Company for Contractors
When exploring the benefits of limited company status for contractors, it's important to look at the tax implications of setting up a limited company. For example, as a limited company is a separate legal entity, its profits are subject to corporation tax. In the UK, the corporation tax rate is 19% for businesses with profits under £50,000, and 25% for those with profits over £50,000. This can be helpful as rates for personal income tax rates are higher, which is 40% for higher earners.
It’s also important to remember that when you’re contracting through a limited company, you might have to register for Value Added Tax (VAT) if your ‘taxable supplies’ exceeds £90,000 per year. Depending on your turnover and the nature of your clients, registering for VAT can be financially beneficial, as you can reclaim VAT on all the goods and services you purchase
If you do decide to go limited, you need to be aware of your employment status under IR35 legislation. If you are considered to be working as an employee rather than an independent contractor, your income is taxed similarly to employment income, meaning that you miss out on many of the tax advantages that come with contracting through a limited company.
At Go Limited, we know how appealing it is to set up a limited company and, in most cases, it’s something we’re staunch supporters of. But, it’s our job to make sure that you’re fully prepared, which is why we encourage you to look at the downsides, tax implications and financial obligations of setting up a limited company. By doing so, you’ll know exactly what to expect and the process will be a lot smoother.
Go Limited FAQs: Is a Limited Company Right for You?
1. What does it actually mean to ‘go limited’?
Going limited means forming a limited company, where you act as a director and shareholder of a separate legal entity. This company:
- Pays its own tax
- Signs its own contracts
- Keeps business finances separate from your personal ones
- This structure offers greater control and potential tax advantages, but also comes with more admin and legal duties.
Go Limited makes setting up and managing a limited company easy – even if you’ve never done it before.
2. Is a limited company more tax-efficient than being self-employed or using an umbrella company?
It can be, especially if you:
- Earn £35,000+ per year
- Work outside IR35
- Are happy to manage (or outsource) some admin
- You can take a small salary and pay the rest as dividends, which are taxed at lower rates. However, recent changes – like the £500 dividend allowance and Corporation Tax rising to 25% for some – mean the savings margin is smaller.
3. How does IR35 affect my decision to go limited?
IR35 rules determine if you’re truly self-employed or working like an employee. If:
- You're inside IR35, you'll be taxed like an employee
- You're outside IR35, you retain the tax benefits of a limited company
- Post-2021, clients often decide your IR35 status, so contracts and working practices need to be carefully managed.
With Go Limited, you get IR35 assessments, contract reviews, and guidance on staying compliant.
4. What responsibilities will I have as a limited company director?
As a director, you must:
- File annual accounts with Companies House
- Submit Corporation Tax returns
- Handle payroll
- Submit an annual Confirmation Statement
- Keep accurate records
- Pay yourself legally via salary and dividends
Go Limited’s accounting partners handle this for you – so you can focus on work, not admin.
5. Is it worth going limited for short-term or part-time contracting?
Not always. If you:
- Earn under £30,000
- Work occasionally or inside IR35
Then a sole trader or umbrella company may be simpler and more cost-effective.
6. What if I’m caught by IR35 but still have a limited company?
You’ll likely be paid under PAYE by your client, meaning:
- Fewer tax benefits
- Reduced flexibility in how you pay yourself
In this case, some people pause or close their limited company and use an umbrella instead – but keep the company dormant for future contracts. Go Limited can help you switch between models without hassle – and keep your company ready when you need it.
7. Can I still claim business expenses through my limited company?
Yes – and more than you can as a sole trader or umbrella worker. Legitimate business expenses can reduce your Corporation Tax, including:
- Laptops, software, and office equipment
- Travel (not your regular commute)
- Insurance, accountancy, and training
Keep receipts and claim only what's “wholly and exclusively” for business use. Go Limited’s tools and accountants help you claim confidently and correctly.
8. Are limited companies being targeted more by HMRC?
Yes, especially around:
- IR35 status
- Dividend payments
- Misclaimed expenses
This doesn't mean you’re doing anything wrong – but it does mean you need to stay compliant.Go Limited helps you build a compliant company structure from day one, reducing HMRC risk.
9. How much does it cost to run a limited company?
Typical annual costs:
- Accountant: £80–£150/month
- Companies House fee: £15/year
- Business insurance: from £100/year
- Payroll, software, and bank fees may apply
Most of these costs are offset by tax savings – if your setup is right. Go Limited offers affordable accounting packages tailored for contractors, consultants, and freelancers.
10. Can I switch between limited and umbrella based on contracts?
Yes – many professionals do. For example:
- Use a limited company for outside IR35 roles
- Switch to an umbrella company for short or inside IR35 contracts
You can even keep your limited company dormant between gigs. Go Limited helps manage transitions seamlessly so you stay compliant and maximise take-home pay.
11. How do I know if going limited is right for me?
Ask yourself:
- Am I consistently outside IR35?
- Am I earning £35,000+ per year?
- Am I open to (or outsourcing) admin?
Do I want flexibility and long-term financial control?
If you’re mostly saying yes, going limited could be the right move.
Still not sure? Go Limited offers tailored advice and free consultations to help you make the right call.
This article breaks down the pros and cons of setting up a limited company as a contractor in the UK. It outlines the major advantages—like higher take-home pay, limited liability, tax efficiency, and enhanced professionalism—while also explaining the disadvantages, such as increased admin, legal responsibilities, and added costs. It covers key financial benefits like claiming expenses, contributing to pensions, and reducing tax via dividends, plus outlines important tax implications including IR35 and corporation tax rules. It's an essential read for anyone deciding whether going limited is the right move.
Please note: Any rates and thresholds mentioned in this article are correct at the time of publishing and may be subject to change.
