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...]
Limited company dividends are the profit a company makes, after tax has been paid, that are paid to the companies registered shareholders.
Dividends are why trading through your own limited company is the most cost effective route for contractors who are not caught by IR35 legislation. Less tax is paid on dividends compared to salary.
It is common for contractors to pay themselves a small salary and make up the rest of their income via dividend payment(s). Usually contractors are the only shareholder, so they get all of the dividend paid by the company.
Dividends are paid out after all other limited company bills are paid. Start with the limited company's gross turnover (income) and take away all outgoings. This will include;
The balance of money you are left with can be paid out to the shareholder(s) as a dividend.
The payment of limited company dividends has to be recorded as a formal board minute(s). It is usual for your contractor accountant to do this on your behalf.
The formal paperwork for limited company dividends is called a 'dividend voucher'. There needs to be a dividend voucher for each of the limited company's shareholders, for each dividend.
There is no set time frame for a limited company to pay out a dividend. It can be done whenever the director choses. Once a year or once a month, though the contracting industry norm seems to be once a quarter - every three months.
Limited company dividends cannot be paid out on the basis of expected future profits. Dividends can only be paid out on actual amounts of money in the limited company bank account.
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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.