Are you a contractor? If you work for someone else, it is important to know whether you are working for that person in an employed capacity or in a self-employed capacity as an independent contractor.
Your employment status will determine the charge to tax on income from your employment or self-employment. It will also determine the class of NICs, which are to be paid.
Umbrella Companies employ you for tax purposes and complete central returns for all their contractors. It's less hassle and more flexible for you but take home pay is typically less than that the limited company option.
The best option for you depends on your plans, 'one off' contract or 'contractor for life'? [Read More...]
In a Nutshell, More Money
Contractors running their own limited company can lower their tax bill by claiming business expenses that have been incurred in the course of their contract assignment.
As long as expenditure has been incurred wholly and necessarily in the day-to-day running of your business you can claim those costs back as expenses. It doesn't matter whether the particular contract at the time is caught by IR35 or not.
There is only one caveat, and that is the cost(s) must be exclusively for business purposes. If your purchase is for part personal use and part business then it cannot be claimed as a business expense.
Always keep any related paperwork relating to expenses, like receipts. You have to keep your receipts for seven years - so make sure your filing system and record keeping is robust.
If you're working on a contract that is caught by the IR35 legislation then you can calculate your expenses at a set rate of 5% of that contract's gross value. You don't have to keep receipts in this particular case.
The 5% limited company expense is set at a level which should be adequate to cover your basic costs. This will, for example, cover your contractor accountant fees and other basic outgoings.
This isn't an exhaustive list and it's important that your accountant is familiar with the expenses that can be claimed. This whole area is not straightforward so always check before you claim expenses through your limited company.
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If you are or plan to be a freelance contractor, you must get to grips with IR35. Ignore IR35 and it could cost you thousands!
It's the basics... Compliance with Tax, VAT, PAYE and fiscal arrangements is mandatory for contractors regardless of whether you use an umbrella company or your own limited company.
Incredible then that there are still rogue umbrella companies and limited company accountants who expose their contractors to fraud. Umbrella Compare provides THE solution, we thoroughly vet all umbrella companies and limited company accountants that we list [Read more...].
Umbrella Compare provides a holistic overview of contracting with the aim of helping new and old contractors find the right payroll solutions. Contracting should be about focusing on the contract, not payroll, accounting, HMRC and bureaucracy.