Limited Company Benefits & Challenges
Working Through a Limited Company: Benefits and Challenges
Whether you’re a contractor, freelancer or sole trader, if you’re looking to maximise your income and take control of your career, setting up a limited company could be exactly what you’re looking for. With a whole range of financial and professional benefits, contracting through a limited company has quickly become the preferred route for many professionals in a contacting niche. However, this also comes with many responsibilities and challenges, and being aware of the downsides is a key part of making the right decision.
At Go Limited, we understand the advantages and disadvantages of working through a limited company, and how it compares to the umbrella company approach. With our help, you can decide which route works best for your professional goals.
What are The Benefits of Setting Up Your Own Limited Company for Contracting
There are a number of benefits that come with setting up your own limited company for contracting, which is why it's something that a growing number of contractors are doing. From limited company wages to limited company tax benefits, it’s easy to see why setting up a limited company has become the ‘go to’ option in the UK.
You Can Claim Tax Deductible Expenses for a Limited Company
One of the main benefits of setting up your own limited company for contracting is being able to claim allowable expenses. There’s a wide range of tax deductible expenses for a limited company, which reduces your taxable profit. Allowable expenses for a limited company include costs such as equipment, travel, office supplies, business insurance and professional training. By deducting these from your limited company revenue, you lower your tax bill and keep more of your hard earned income in your pocket.
You Can Maximise Limited Company Wages Using Salary and Dividends
When you’re contracting through a limited company, you have a lot of flexibility in regards to how you pay yourself. A lot of limited company contractors pay themselves a small salary - usually up to the tax-free personal allowance, ensuring National Insurance is still paid - and then take the rest of their income as dividends. As dividends are taxed at a lower rate than regular income, this allows you to reduce your overall tax liability and increase your limited company take-home pay.
Your Limited Company Take-Home Pay is Likely to Be Higher
When you’re putting a lot of time, energy and hard work into building a business, you want that reflected in the money you earn. When you set up a limited company for contracting, you’re likely to see more of that hard-earned money. Compared to working under an umbrella company or as a sole trader, contractors operating through a limited company usually have a rate of take-home pay. This is because you can pay yourself a combination of salary and dividends, which is a lot more tax efficiency. Plus, you have the ability to claim allowable expenses, which also reduces your outgoings.
You Have Greater Control Over Your Business and Career
Operating your own limited company can provide you with control over your work, your clients, and the growth of your business. Compared to being employed or even oprating via an umbrella company, you will have the ability to negotiate your rates, select the clients you wish to work with, manage your brand, and even expand your services or hire subcontractors if you desire.
This level of freedom and flexibility is a significant draw for many professionals, as well as an opportunity for growth.
Your Personal Assets Are Safe and Protected
As a limited company is a separate legal entity from its owner, your personal finances are protected if the business runs into financial trouble. In the event of debt or legal action, your liability is limited to the value of your shares in the business, which stops your personal property, such as your home or savings, from being at risk.
You May Be Seen as Being More Professional by Clients
There’s a lot of contractors out there, and clients have the freedom to choose who they work with, which is why you need to stand out. Many clients view limited companies as being more professional and established, compared to individuals operating under their own name, such as sole traders and freelancers. Having a limited company name, business bank account, and being fully registered can help to boost your credibility and make you more appealing to clients.
The Downsides of Contracting Through a Limited Company
As you can see, there are a number of benefits of contracting through a limited company, but that doesn’t mean there isn’t a challenge or two.
You’ll Have More Admin and Paperwork to Manage
One of the biggest downsides of contracting through a limited company is the amount of paperwork involved. You are responsible for managing your own accounts, filing annual tax returns, submitting VAT returns, running payroll, keeping accurate records and meeting HMRC deadlines. The admin side of running a limited company can be daunting, but many contractors hire a limited company accountant to help.
You’re at Risk of Making Costly Errors (Unless You Have Expert Help)
Whether you’re organising your limited company tax benefits or allowable expenses for a limited company, there’s a chance of you making a mistake. Tax and accounting in the UK can be complex - especially with rules like IR35 - that affect how you are taxed. If you don’t understand these rules or you make a mistake, you could face penalties, interest or even an HMRC investigation. Of course, you can reduce this risk by working with a limited company accountant.
You Have Additional Costs When You’re Contracting Through a Limited Company
There’s undeniable financial advantages to contracting through a limited company, but there are also a handful of additional costs you’ll need to consider. These include accountancy fees, business insurance, bookkeeping software and any professional services that you need to keep on top of the paperwork side of things. These expenses are usually outweighed by the tax benefits of setting up a limited company, but they could eat into your profits slightly.
Limited Company Alternatives: Umbrella Company vs. Limited Company
If you’re not ready to manage the responsibilities of setting up your own limited company, you might have considered contracting through an umbrella company. It’s an approach that many contractors consider, as it appears to be a simpler alternative. With this approach to contracting, the umbrella company technically employs you, which means that they handle all of your tax and compliance obligations. This overcomes one of the main challenges of having a limited company, as the responsibility of tax is handed over to someone else. The umbrella company then pays you a salary after deducting taxes and fees, and you’re paid via the PAYE system as you would if you were a full-time employee.
If you decide to contract through an umbrella company, you’ll have very few administrative responsibilities, as the umbrella company handles tax, invoicing and payroll on your behalf. You are treated as an employee, so you don’t need to worry about IR35. You’re already taxed through PAYE and fall outside the scope of the legislation, giving you one less thing to worry about.
An umbrella company structure generally results in reduced take-home pay because all earnings go through PAYE taxation. When you work through an umbrella company you can't access dividend payments or business expense claims which limited company contractors receive. Your paycheck will have deductions from umbrella company fees. When working with an umbrella company you face limited financial control because you cannot adjust your payment method or income management.
Is Working Through a Limited Company a Better Choice?
For a lot of contractors, working through a limited company is a better choice. As a limited company contractor, you can retain a higher percentage of your earnings through the use of salary and dividends, and you can claim a wide range of allowable expenses. This reduces your taxable income and improves profitability, keeping more money in your business and pocket. You also have full control over how your business operates, including who you work with, what you charge, and what projects you take on.
Though you are responsible for all administrative tasks, including tax returns, accounts, payroll and statutory filings, limited company accounts are there to help. They will ensure compliance and avoid mistakes, giving you more time to focus on growing your business.
At Go Limited, we’ve seen a lot of contractors make the leap from freelancing or being a sole trader to setting up their very own limited company, and few regret that choice. As a limited company contractor, you have the freedom to control the ins and outs of your business, including your income and expenses. For the majority of limited company contractors, the added paperwork and responsibility is a small price to pay for the financial benefits a limited company brings to the table.
Go Limited FAQ: Working Through a Limited Company Everything Freelancers, Contractors, and Consultants Need to Know
1. What is a limited company?
A
limited company is a legal business structure where the company is separate from the person running it.
It:
- Has its own legal identity
- Is registered with Companies House
- Limits personal financial liability for its directors and shareholders
Go Limited offers fast and compliant limited company formation services, even if you're new to business ownership.
2. What are the benefits of working through a limited company?
Key advantages include:
- Tax efficiency: Pay yourself via dividends and salary
- Limited liability: Protects your personal assets
- Professional image: Looks credible to clients and lenders
- Financial control: Better management of business income and expenses
Go Limited helps maximise your tax benefits while ensuring you meet your legal responsibilities.
3. What are the downsides of running a limited company?
Some potential drawbacks:
- More administrative tasks
- Complex tax and reporting obligations
- IR35 exposure for contractors
- Additional accounting and legal costs
With Go Limited, expert help is built in – we handle the admin so you can focus on your business.
4. How is tax handled in a limited company?
- Your company pays Corporation Tax (19–25% depending on profits)
- You pay yourself a salary and/or dividends, which are taxed separately
- Dividend tax rates are lower than income tax, making this structure attractive for many
Tax rules evolve, so staying up to date is essential.
Go Limited partners with accountants who help you build tax-efficient strategies based on the latest legislation.
5. What is IR35 and why does it matter?
IR35 determines whether HMRC sees you as a genuine contractor or a disguised employee.
If you’re
inside IR35:
- You pay full PAYE tax and National Insurance
- Your company loses key tax advantages
With tighter IR35 enforcement expected in 2025, it's critical to review your contract setup regularly.
Go Limited offers IR35 reviews and switching support between limited and umbrella models.
6. Do I need an accountant to run a limited company?
It’s not a legal requirement, but most directors use an accountant to:
- Handle tax returns, payroll, and VAT
- Ensure compliance with Companies House and HMRC
- Avoid penalties and improve cash flow planning
Go Limited includes access to trusted contractor accountants as part of our service plans.
7. Can I set up a limited company by myself?
Yes, you can register directly on Companies House, but:
- Mistakes during setup can affect tax status, IR35, or legal structure
- Many prefer to use specialist services to get it right the first time
Go Limited sets up your company correctly, fast – and handles all the paperwork.
8. Should freelancers or contractors set up a limited company?
It depends on your:
- Earnings (typically £35,000+ makes it worthwhile)
- Client types and IR35 status
- Commitment to contracting long-term
Many freelancers enjoy higher take-home pay and greater control using a limited company – but the extra admin may not suit everyone.
Not sure? Go Limited compares your options across limited, sole trader, and umbrella setups.
9. What are my responsibilities as a company director?
As a director, you must:
- File annual accounts and a confirmation statement
- Maintain accurate financial records
- Pay Corporation Tax, VAT, and PAYE on time
- Act in the company’s best interest
We simplify this with reminders, checklists, and optional full-service support through Go Limited.
10. What happens if I want to stop trading through my limited company?
You can:
- Dissolve the company (if there are no debts)
- Liquidate formally (if debts exist)
- Or make it dormant if you want to pause operations
Each route has tax and legal implications.
Go Limited helps you wind down your company correctly or keep it dormant for future use.
This article explores the benefits and challenges of working through a limited company in the UK. It highlights the tax efficiency, expense claims, and flexibility contractors gain—while also explaining the downsides like admin, legal duties, and added costs. It compares limited companies with umbrella companies and helps you decide the best path based on your goals, income, and experience.
Please note: Any rates and thresholds mentioned in this article are correct at the time of publishing and may be subject to change.
