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New to contracting

Every day contractors ask us questions about tax and accounts, things to do with their Limited Company, or just general business questions. This is what we tell them.

Q: What do I need to know about borrowing money from my Limited Company?

Borrowing cash from your business creates a directors’ loan and has tax implications, and is not something we would recommend without prior discussion. Simply any loan above £10,000 is likely to result in a benefit in kind, and any loan outstanding more than 9 months after a company year end will result in additional Corporation Tax of 25% of the balance.


Q: What if I stop contracting?

It’s quite simple; if you know that you are never going to be a contractor again as you are re-entering the world of permanent employment, relocating or retiring, Intouch can help you to wind up your company in the most tax efficient manner. If it looks as though you may only be pausing or taking a break from contracting, you have several options to complete your company financial year or go dormant for a while. Intouch will steer you safely through your options so that you can stop completely or resume contracting when it suits you.


Q: Why is an online accounting system good for me?

Being able to input your accounts securely online saves you time. It also means that you can see where you are at all times, such as what dividend you can take and what’s owed. Because your accounts are produced in real time and always up to date, we can also give you clear, accurate advice at any time, whereas historical accounting methods require you to wait for your accounts to be completed at your company year end. New contractors particularly like this level of certainty when they are getting to grips with all the other matters involved in starting up.


Q: Should I be VAT registered?

There are advantages for contractors who become VAT registered. Find out more


Q: What do I have to do as a director?

As a shareholder (owner) and director (employee) you will be responsible for the operation and control of your company, its bookkeeping, preparation of tax returns and filing of information, and ensuring you understand your risks under IR35. Intouch can help you carry out all accounting and compliance requirements. You will need to arrange appropriate insurances and protect the assets of the business.


Q: Do I need a bank account?

Although a company bank account is not a legal requirement we highly recommend that you set one up. This enables you to keep all company transactions separate from your own, and gives HMRC no excuse to review your personal bank statements if they decide to look into your company!

You should also consider setting up a savings account so that you can set aside enough funds to cover the expected taxes as you go. Often taxes are not due until months after you receive the income, and it’s far too easy to accidentally spend the money if you don’t set it aside when you have it.

We can help you set up both a current account and savings account when you start, and are able to provide an account number quickly so you have it ready for your agency.


Q: How do I form a company?

Forming a Limited Company involves registering the necessary details at Companies House and then registering the new company with HMRC. At Intouch we can do all of that for you, just let us know the name you want, the shareholders and directors you wish to appoint, and we’ll do the rest for you!

Once your new company is set up we can then register it for PAYE and VAT, and help in setting up a bank account too.

View further information here.


Q: What are the advantages of a Limited Company?

Intouch will help you to pay yourself via a combination of wages and dividends. As these payments carry different taxation levels you will retain more of what you earn while the tax man will still get all that he is entitled to. You will have more control, based on when you draw money from the company, over when taxes fall due. You will have more flexibility in the way you plan your finances or invest money that remains in the company account. You also have advantageous options when it comes to appointing other directors, should you choose to.


Q: New to contracting: What do I do first?

First of all, decide which type of contractor arrangement suits your circumstances. If you think working as a contractor is only likely to be short term, then invoicing and payment under an Umbrella arrangement might suit you best. When you know that you are committed to working as a contractor it’s time to consider trading as a Limited Company to take advantage of the extra control it will give you over your income and tax planning. Intouch can help you get set up quickly and simply. You’ll find further food for thought in the Intouch Resources section.