A Limited Company or Personal Service Company is a corporate structure created to handle the tax and business accountancy affairs of one contractor and is self administered with the assistance of a third party accountant. A contractor running a limited company is responsible for ensuring all tax matters, contractual obligations and employment rights are administered correctly as well as ensuring they pass self employment tests and qualify as falling outside of IR35 legislation.

If you are working through a Limited Company and pass IR35 self employment tests, you will usually pay yourself a small monthly salary and take the remainder of your remuneration via dividends. PAYE (Income Tax), Employers and Employees National Insurance will typically be deducted via your accountant.

You will also claim back any expenses you may have incurred from the Company at regular intervals (e.g. stamps, PC equipment, etc.). For those who fall within IR35, you are allowed to claim a 5% 'expenses allowance'.

At Company year end (typically 12 months after incorporation), your accountant will prepare your company accounts and you will be liable to corporation tax on all company profits for the previous 12 months (i.e. Turnover minus expenses, salary, executive pension, etc.). This is payable 9 months following your company year end.

You will also be liable to pay any personal tax liabilities via the self assessment process, to include all personal income received and taking into account any 'benefits in kind'. This liability must be met by 31st January each year (for year ending the previous April).

It is critically important that anyone working through a limited company (and  being remunerated by way of a dividend structure) is not caught by IR35 self employment tests. If a contractor is caught, and therefore is "deemed employed", tax liabilities will accrue and could potentially create a huge liability for underpaid tax.