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I am thinking of doing contracts instead of full time employment in the IT sector. I have researched that I can go Limited and employe an accountant for all the tax, payroll and dividends. I have not selected an accountant yet because they want monthly payments, which I do not want to spend yet because I want to resign in July, and during my resignation period scout for contracts.

  • I was just thinking ahead, can I apply for limited company now, while being a full time employee, and not take any business until I get a contract?

  • What happens if I create a company and it has no turnover at all? Does this complicate things later?

  • Is it the same if I decided to take a one month (or longer) holiday and the company again will not incur any turnover?

  • Is it a okay to do this in foresight or should I wait weeks before actually deciding to search for contracts?

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    Thanks. Sorry, don't know UK law. If it were a US LLC, there are no rules on starting an LLC and leaving it dormant, provided that you pay the required state fees and make the required state reports (basically just acknowledging that it still exists). If it has a single owner and no income, then there would be no tax reporting consequences either. But I don't know if this holds for the UK. I'd look at their annual fee and reporting rules. Also, would it technically be a "private limited company?" – NL7 Apr 1 '14 at 20:39
  • There is no option to register as private limited on the sites I visit, there is guaranteed limited on some, but that is if I don't want the word Limited in my company name or something.. but the uk gov site does talk about private limited. I think its automatically that if there is only one director. But good tip. I will check it out further, – WillyWonka Apr 1 '14 at 20:41
  • Is this where you went? Companies House? companieshouse.gov.uk/infoAndGuide/companyRegistration.shtml – NL7 Apr 1 '14 at 21:10
  • I looked at agents that provide additional services, like post referring, insurance, certificates,dividneds coupons and setup, etc. That is just the basic registration. Why? – WillyWonka Apr 1 '14 at 22:01
  • That should not make to much of a difference - one important thing is to check if your employment contract allows you to have your own business. – assylias Apr 1 '14 at 22:34
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I was just thinking ahead, can I apply for Limited company now, while fully time employed, and not take any business until I get a contract.

Yes. You can open as many companies you want(assuming you are sane). There is no legal provisions regarding who can open a company.

What happens if I create a company and it has no turnover at all? Does this complicate things later?

After you open a company, you have to submit your yearly statements to Companies House, whether you have a billion pounds turnover or 0. If you claim VAT that has also to be paid after you register for VAT. VAT registration is another registration different from opening a limited company.

Is it the same if I decided to take a 1,2 or x month holiday and the company again will not incur any turnover?

Turnover is year end, so at the year end you have to submit your yearly results, whether you took a 12 month holiday or a week's holiday.

Is it a OK to do this in foresight or should I wait weeks before actually deciding to search for contracts.

No need to open a limited company now, if you are so paranoid. Opening a company in UK takes 5 minutes. So you can open a company after landing a contract.

  • Thanks really good answer. It makes sense. Did I really come across that paranoid? Didn't mean to just not sure how to get on with this, and looking for some experienced advice. – WillyWonka Apr 2 '14 at 17:09
  • @WillyWonka - Nope I jacked up your fears to being paranoid. – DumbCoder Apr 2 '14 at 17:10
  • Undischarged bankrupts cannot start Ltd companies. – davidjwest Oct 10 '17 at 12:50
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Can I apply for limited company now, while fully time employed, and not take any business until I get a contract?

Some employment contracts may include non-compete clauses or similar which expressly forbid you engaging in other employment or becoming self-employed while simultaneously working for your current employer.

You may want to check this out before making any moves to register as a limited company. You may forfeit long-term benefits (such as a pension) you have built up at your present employer if they catch wind of a conflict of interest.

As noted in an earlier answer, the setup process for a limited company is extremely simple in the UK, so there is no reason you need to take these steps in advance of leaving your current employment.

During my resignation period scout for contracts...

Should I wait weeks before actually deciding to search for contracts?

Depending on the type of IT work you intend to be contracting for, you may find yourself shut out from major work if you are not VAT registered. It is a requirement to register for VAT when you breach certain earnings limits (see HMRC's website) but you can voluntarily register with HMRC before these limits if you wish.

Being VAT registered increases your bookkeeping and oversight requirements, which makes you appear more attractive to larger enterprises / corporations than a non-VAT registered firm. It also suggests some degree of stability and a plan to stick around for the long haul.

This might be a catch-22 situation - if you want to get noticed and land the sizable contracts, you will almost certainly require a VAT registration regardless of your overall yearly earnings. It would be advisable to engage the services of a professional advisor before becoming VAT registered, but this and the subsequent professional advice you may require for putting in VAT claims may not be a fee you wish to pay upfront if you are only attracting a small volume of work.

  • Good call on the VAT part. I wanted to go VATless until I hit the cap but it seems like going with VAT straight away is better, as I the company gains a better status. And also using the flat scheme I can make about 6-5% extra revenue on charging VAT, since I charge 20% but only have to pay back flat rate of 15, on revenue.(UK) – WillyWonka Apr 10 '14 at 21:20
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You can register a limited company and leave it dormant, that's no problem. You just need to make sure that later on you notify HMRC within 3 months of any trading activity. As pointed out, you can register a company in a few hours now so I wouldn't worry about that.

Your confusion about Private Limited Companies is understandable, it's often not made clear but UK formation services standard packages are always Private Limited by Shares companies. Limited by Guarantee is something else, and normally used by charities or non-profits only. See explanations here.

Registering for VAT is optional until you reach the £81,000 turnover threshold but it can make your services more attractive to large companies - especially in your field of business. You should really seek professional advice on whether or not this is the best option for you.

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