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...]
Contracting through a limited company is straightforward, with a bit of help. There's a few forms to complete but nothing too difficult and normally only takes a few minutes online.
Private Limited Company (LTD): this is the most common type of limited company used by contractors. There must by one Director, optional is a Company Secretary. You cannot offer shares to the general public.
Public Limited Companies (PLC): There must be a minimum of two Directors. In order to raise money shares can be issued to the general public (issuing a minimum value of £50,000).
Assuming you opt for a Private Limited Company, this is how you go about contracting. First of all, you will have to;
Your limited company accountant will help you with all of this administration setup.
You will become a director of your private limited company. A private limited company only needs one director. As a director you will control invoicing, the company's bank account and figure out how much to pay yourself.
Directors have legal responsibility on the correct running of the private limited company. Even though you will appoint an accountant to help you out, the responsibility for compliance will still be with you.
What you pay yourself will be made up of two elements: a salary and dividends. Both elements will depend on what gross income you are earning.
Your private limited company will enter into a contract with your recruitment agency or, sometimes, the end-client. Trading via your private limited company means you can claim tax free business expenses, such as:
The industry average price for an accountant specialising in the contractor market is around £100 per month.
Your contractor accountant will expect you to enter into a 12 month engagement that coincides with the trading year of your private limited company. You should be able to take home roughly 80% of your gross income.
There are specailist accounting companies who provide Limited Company accounting and support specifically for contractors. Typically, these specialist contractor accountants will provide a monthly service fee that encompasses all your tax returns and accounting requirements with online accounting systems that rival / exceed umbrella company solutions and provide the added advantage of full limited company status.
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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.
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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.