The Advantages and Disadvantages of a Contract are:
<u>Advantages of Contract:</u>
1. <u>Higher take-home pay-</u>
Everybody wants to take home more of their hard-earned pay, while staying on the right side of HMRC. A Limited company offers greater opportunity for intelligent tax planning than self-employment or an umbrella company.
2. <u>Tax relief on business expenses-</u>
Any costs incurred solely in the running of your business can be claimed back as expenses, allowing you to offset the necessary costs of contracting. You can find out more in our Expenses Guide.
3. <u>Greater opportunity for tax planning-</u>
In addition to expenses, you may benefit from the flat rate VAT scheme, and you can plan how and when to draw income from the Limited company in the most tax-efficient manner.
4. <u>Total control of your business and name-</u>
You have complete control of your own financial affairs. Once incorporated, the name of your company is protected – even if you’re not currently contracting.
5. <u>One company for all your business interests-</u>
Any business you undertake can be done under your Limited company banner. This presents a more professional image, and gives you more credibility in the eyes of your suppliers and customers.
6.<u> Limited liability and protection of personal assets-</u>
In the event that a business fails, you cannot be held liable for the debts of a limited company and your personal assets are not at risk.
<u>Disadvantages of Contract :</u>
1.<u> Unsuitable for short-term or lower-income contracts- </u>
As a general rule, a Limited company is not the best option for those contracting short-term or earning less than £25,000 per year. In some circumstances it can still be beneficial – it’s worth contacting an accountant for more information.
2. <u>Additional administration-</u>
Although a quality contractor accountant will take the majority of the administrative burden away from you, you’ll need to keep track of your finances, expenses and outgoings. This is usually no more than 30 minutes per month.
3. <u>Yearly accounts-</u>
You’ll need to file your company accounts yearly, including personal and corporation tax returns. Again, your accountant will handle the majority of this for you, but you’ll need to be organised to provide them with the information they need.
<h3>What is Contract?</h3>
A contract is a voluntary agreement between two parties who promise to exchange money, goods, or services according to a specific schedule.
A contract requires an exchange of consideration: a vendor (seller, consultant) provides a product or service, and a buyer (e.g., Caltrans) pays for that product or service.
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