When a contractor runs a limited company, the contractor runs a company just like any other, big or small. You may not be Richard Branson, but you can do anything and everything that the Virgin Group does. You may not have the same money and resources, but you can do your best (although we hope you'll keep away from ''Tubular Bells.'' Once was enough).
To be serious: You can act like a major company, and have:
- As many businesses and activities in your company as you can handle.
- Another company as a subsidiary with another or a related activity
- Financial or business investments
Have a Sideline
Lot's of contractors have sidelines. You may manage databases as your main job, but perhaps you invest in coins and stamps on the side. There is no reason why you shouldn't run the coins and stamps business through your limited company.
Simon Sweetman, a Felixstowe-based tax consultant referred by the London-based Federation of Small Business, explains: ''There is no legal or fiscal restriction on the activities a contractor may run through a limited company. The only limits set on these activities are by any other shareholders in the company, and these would be expressed in the Memorandum of Association But in general, the Memoranda are worded in a very general way today and usually pose no obstacle.''
Sweetman points out that you should account for each activity separately, although you are free to deduct expenses from either activity from your total earnings.
You can have as many activities under you limited company as you choose
Simon Sweetman-tax consultant
If you run a loss from one activity, you can compensate for it with profits from your other activity. But you should be careful if you run a loss in both activities, Sweetman points out, and be sure that you have funds saved up to cover the loss. You can carry the loss over into the next year, Sweetman says.
Own Another Company
You can use your limited company to own and operate another company if you choose. This will have the advantage of separating your different business activities from the tax point of view. But you will have to run two separate companies, keep two sets of books, etc. ''With two companies, you double the amount of administration,'' Sweetman points out.
A loss from the subsidiary company could be deducted from profits at the main company. You can also develop the separate company for sale.
Tax Status Issues
You should also be careful if you decide to sell one of the businesses, Sweetman points out. You would want to sell the business on the basis of personal capital gains tax, which is lower than the corporate one. Having two activities might make it more difficult to do make the sale under the personal regime, so you would be well advised to take advice if you do consider selling an activity off.
You should, however, be careful if you begin running all your activities at a loss. You will be able to carry losses over from one tax year to another, but you still have to make up the loss if you are to remain in business. In a bad year, having two companies could mean double the amount of expenses too.
With two companies you double the amount of administration
Simon Sweetman-tax consultant
Published: Tuesday, August 21, 2007
© 2012 All rights reserved. Reproduction in whole or in part without permission is prohibited.
Please see our copyright notice.
If you want to use any content you have seen on this site then
please request our media pack and
ask for details of our Content Licencing Service.
