When passion turns to profit – 5 reasons to become a Limited Company contractor

When passion turns to profit

Becoming a Limited Company contractor may seem like a big step but, when taken properly, it’s a savvy move that could see a quantum leap in your business (and your bottom line).

 

When you’re pursuing your passion as a contractor, operating under an Umbrella company looks like an attractive option – with its minimal paperwork and administration. Happy days.

 

But if you want to turn your passion into more pounds in your pocket, you may want to consider contracting through your own Limited Company. You’ll not only reduce your tax burden, but your business will become more of a magnet for prospective clients.

 

What are the advantages of contracting via a Limited Company?

There are scores of reasons for “going Limited” and trading through your own Limited Company, especially if you earn £30,000 a year or more and plan on contracting for at least three to six months. We walk you through five of the main incentives.

 

1. Tax and National Insurance Contributions (NICs)

You’ll be hard pushed to find someone – anyone – who doesn’t want to pay less tax.

As a Limited Company director, the bulk of your income is made up of dividends, which are subject to a different tax than a regular salary. Plus, National Insurance Contributions (NICs) aren’t payable on dividends. All of this means more money in your pocket at the end of the month.

Last year’s Summer Budget may have increased dividend taxation after the first £5,000 but this shouldn’t deter would-be contractors opting for the Limited Company option. After all, at the top end, you can still take home significantly more of your contract value compared to when you operate through an Umbrella company.

Why not use our take home pay calculator to see how much you can expect to take through your Limited Company versus an Umbrella?

 

2. Expenses

The more allowable business expenses you claim, the less you’ll owe the taxman.

Given that business expenses are deducted from Limited Company profits (and you only incur tax on profits), if your profits are reduced, your tax bill will be too.

As a Limited Company contractor, the range of expenses you can claim tax relief on is far broader than when you work under an Umbrella company.

 

3. VAT Flat Rate scheme

If your Limited Company taxable turnover is £150,000 or less (excluding VAT), you’re eligible to join the Flat Rate Scheme (FRS), which means you:

  • pay a fixed rate of VAT
  • keep the difference between the amount you charge your clients and pay to HMRC

 

Money-saving benefits aside, the FRS simplifies your record keeping and VAT calculations (never a bad thing). By contrast, if you choose to go down the Umbrella route, you won’t be able to take advantage of the FRS at all.

 

4. Liability

As a director of a Limited Company, you’re protected by having limited liability.

So, even if the worst happens and your business goes down the pan, you’ll only be personally responsible for your company’s debts to the extent of any shares you paid for and unsecured loans made to the company.

This is because your Limited Company has a separate legal personality. In other words, your clients enter into contracts with your Limited Company as an entity, not you as its director.

 

5. Client confidence

Appearances count for a lot in business and having a Limited Company structure can instil confidence in clients and potential clients, some of whom equate ‘Ltd’ with professionalism.

Many businesses won’t even take you on for a contract if you don’t have a registered Limited Company.

 

When is the best time to become a Limited Company contractor?

Conventional wisdom says that, while your earnings are fairly modest, it’s best to stay on the Umbrella pathway because your tax and accounting responsibilities are fairly basic. You can comfortably do a DIY job on your Self Assessment (and save yourself accountancy fees).

In reality, working as a Limited Company contractor isn’t just about saving money. It’s about keeping the financial health of your business and personal lives separate. There’s no better time to do this than now.

 

How do you start working as a Limited Company contractor?

Before cracking on as a Limited Company contractor, you’ll need to register your company with Companies House.

You have three choices:

1. Do it yourself online

2. Ask an accountant to do it on your behalf

3. Use a company formation agent

 

The Companies House website sets out the registration requirements, registration fee, restrictions on company names and so on. Or speak to us and we’ll do it for FREE in 24 hours. You can also read our guide to contracting and our blog on how to set up a Limited Company.

 

If you’re currently working under an Umbrella company and considering making the move to becoming a Limited Company contractor, talk to our experts today about what you need to know and how to get started.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Everything’s about to change for Umbrella workers – make sure you’re prepared

Calling all Umbrella workers

Are you currently contracting under an Umbrella? Have you considered how the changes coming in April will affect you?

 

Read on to know what’s coming, what you’ll be losing and what you can do to make the right choice for you.

 

Announcements made in the 2015 Budgets, the Autumn Statement and the draft Finance Bill shook the UK’s 200,000 Umbrella workers, as the feared changes were confirmed. Fundamentally, Umbrella workers’ take home pay is under threat from increased taxation. Come April 2016 strict new rules are to be imposed. How will they affect you?

 

Your professional life will change

In April this year:

  • Your tax relief on travel and subsistence expenses will be restricted, where you are subject to supervision, direction or control (SDC)
  • You’ll automatically be deemed as subject to SDC by HMRC and your Umbrella must determine otherwise with the help of the client
  • Greater compliance checks will be enforced
  • Other expenses you claim will be taxed under PAYE
  • By law you will have to submit a Self-Assessment Tax Return to obtain tax relief on other expenses
  • Umbrella charges may increase to pay for the additional compliance

 

So what are your options?

  • Be moved over into a Limited Company by your current Umbrella provider if (or when) they offer this service
  • Run the risk of other untested models designed to avoid the changes
  • Set up your own Limited Company
  • Return to permanent employment
  • Stay with your Umbrella and see if the model still works for you.

 

Many contractors work under an Umbrella because their services complement their professional requirements. But this is all about to change.

 

Umbrellas in their current form will need to implement major changes to the way they operate in preparation for April’s changes. What they will look like is as yet unknown, meaning they’ll be untested and unproven.

 

If contracting is a long term career choice, then it’s worth revisiting your options.

 

Tempted to go Limited?

If your current Umbrella provider is offering you their Limited Company services, it may be tempting (and seem easier) to stick with them. But you could end up paying more for a service that doesn’t meet your requirements. It’s worth checking out what specialist contractor accountants offer to make sure you’re getting the service you need to run your company smoothly and help you stay compliant.

 

We’ve compiled the essential checklist of what every Umbrella-to-Limited contractor should expect from their prospective service provider:

checklist

 

To help with your research why not download our essential checklist? You can do so by clicking on this link:  The essential checklist (104 downloads )

 

Final thoughts

Change is imminent, but it’s how you prepare yourself now that will put you in the best stead for April. Whatever decision you make, always ensure it’s the best one for you, both personally and professionally. Don’t be persuaded by your existing provider that their solution is your only choice.

Before you get caught up in your research, why not make use of our free take home pay calculator to give yourself an idea of how much you could be taking home as a Limited Company contractor.

 

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

What to consider when becoming a contractor

What to consider when becoming a contractor

It’s safe to say that almost everyone knows someone who has decided to take the leap into contracting. Be it for lifestyle or financial reasons, or maybe even the outcome from starting a family, more and more people are seeing the benefits from entering the world of contracting.

 

But how do you become a contractor, what’s involved and what do you need to consider? In this blog we set out to answer the top five questions asked by contractor newbies, in order to help get you started on this exciting new venture!

 

Step 1 – Check the current market for a demand in your skills

Before quitting your job, make sure there’s a demand for the type of work you do and the skill sets that you possess. Take a look at some job boards such as Contractor UK and CWJobs to get a feel for what’s currently in demand. Sites like IT Jobs Watch and testing circle will give you an indication into the types of day rates you can commision, which will put you in good stead when gauging how much you can expect to earn.

 

Step 2 – Decide on what your trading structure should be

Will you trade through your own Limited Company, or work under an Umbrella company? Do the contracts you’re applying for state whether you need to be Limited, or do you want to have your own professional presence as a Limited Company? We appreciate that deciding on your trading structure can be daunting, as there are many things to consider. Download our guide: Limited Company or Umbrella – which is the right choice for you? to fully understand the pros and cons for each and how your chosen structure will affect your overall take home pay.

 

Still unsure of which direction to take? Our advisers can tell you whether your contracting circumstances would make you suitable to trade through your own Limited Company. Speak to them today, call 01202 375 562.

 

Step 3 – Understand IR35 and how you can claim expenses

Have you heard of IR35 but unsure of what it is? In short, IR35 determines whether you are an independent contractor of your own accord, or are acting as a disguised employee. Being regarded as ‘inside’ or ‘outside’ of IR35 will have a significant impact on your ability to claim tax on both your earnings and things like expenses, so it’s important to understand the impact of IR35.

 

If you decide to go Limited, your contractor accountant should be able to guide you on IR35. Here at Intouch Accounting we include IR35 contract risk assessments as part of our monthly service fee. To see what else is included take a look at the full list of service inclusions.

 

Are you considering travelling for contracts or purchasing specific equipment, but worried about your ability to claim it back? The resources section of our website has an extensive range of guides, specific to the different types of expenses you can claim for. We have also created an ebrief that explores the changes to how contractors can claim for business expenses that will come into affect in April 2016. Download it now so that you are up to speed with what you can claim for when contracting.

 

Step 4 – be prepared

When scouting for new contracts make sure your ‘shop-front’ is dressed and ready to receive new customers. In other words, make sure your CV, LinkedIn profile and personal website (if you have one) are all up to date and showcasing your latest work and skills. Shout about your achievements and ask previous clients for testimonials to display on your LinkedIn profile. All this will help to get you noticed and ultimately that dream contract.

 

Take a look at our blog, do you look like you mean business? for advice on how to get your business website in tip top condition.

 

Step 5 – leave full time employment and take the leap!

On paper this step is so simple, but in reality this can be the toughest part! Letting go of the security a full time position provides and starting a new way of working that you’ve never experienced before can be scary, but anyone who has made a success from contracting will tell you that it’s the best professional move they’ve ever made!

 

With the New Year just around the corner, why not make 2016 the year to be your own boss? If you feel confident of your decision and are ready to take the leap, remember that you contractor accountant is with you every step of the way. Sign up with Intouch today and you’ll get unlimited advice from your dedicated Personal Accountant. Plus, we’ll set up your company for free.

 

If you have questions about the stages of setting up, or just need to talk through your options with someone then give our advisers a call on 01202 375 562.

 

Want a more comprehensive guide on starting out in contracting? Download our guide: How do I start out as a contractor?

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Contractor Toolbox: Don’t let Limited limit your success

3 resources for Limited Company contractors

Going it alone working as a contractor and setting up a Limited Company can be a daunting prospect, particularly for those new to contracting or freelancing. With so much legislation and admin to contend with when you register as a Limited Company, it can be hard to see the wood for the trees – disrupting your focus on the work you’re being paid for.

Unfortunately, the perception of how overwhelming going Limited can seem can put people off taking this potentially profitable path – where a higher take-home pay is just one of the many advantages of a Limited Company. However, being registered as a Limited Company doesn’t have to mean going it alone. With a plethora of resources and support available, there’s always a helping hand on offer. As long as you have the right tools in your toolbox, and know where to look for them if you don’t, you can reap the rewards of your trade – focusing on the contracted work at hand.

It’s essential that as a contractor or freelancer you not only recognise the tools and resources at your disposal, but utilise them to full effect. This is especially important in a time of transition, such as registering as a Limited Company – where your own resource may become stretched as you take on the responsibilities of managing your business as a separate entity. If you’re still debating the pros and cons of which trading model is best for you, see our breakdown: Sole Trader vs Limited Company vs Umbrella.

  1. Networking tools

networking tools

Whether you’re well established as a contractor in your industry or new to the game, actively maintaining your network of business contacts is essential to success. Not only can contacts provide a valuable source of referral work for new contracts and jobs, they can provide a support network on a personal level. Rather than viewing your peers as competitors, view them as the resources that they are. Whether it’s for business advice or guidance on a specific project, utilising your network to its full extent provides some welcome support.

Networking events

Word of mouth remains the most powerful marketing tool there is, and showing your face at industry events is key in connecting with potential clients – keeping contract work flowing your way. You can action this by looking up local networking events in your sector and setting aside time each month to attend. Not only are networking events a great source of referral work, they’re an opportunity for you to network with other contractors who can be an invaluable resource for advice and guidance on everything from choosing a trading model to increasing your rate. Successful networking is about keeping the conversation going – so whether it’s an old colleague, an existing client or a friend, find a reason to get in touch with them on a regular basis.

Networking online

LinkedIn dominates the world of online networking, and you should dedicate time every day to checking your LinkedIn account and news feed. By building a list of relevant and engaged connections on LinkedIn, your profile (and services) will become visible to more new people – and you never know who could potentially send work your way, or provide a solution for a specific problem. LinkedIn groups specific to contractors are also a great place for finding referrals or discussing issues and concerns with your peers – acting as contractor community noticeboards. For more advice on getting the most out of online networking for contractors, read our blog post on the benefits of LinkedIn.

Intouch Accounting has set-up an exclusive networking group specifically for our contractor clients, providing access to valuable contacts and information exchange. Click here to request access to this group.

  1. Technology tools
technology tools

Due to the nature of contract or freelance work, organisation is essential – especially when travelling. Tracking work and time is vital for accurate invoicing and contractors need to be able to record this information on the go and keep it at their fingertips. Technology is a wonderful thing, and with a wide range of software and apps for business available, you can maximise your profitability by maximising your efficiency on the go.

Cloud storage

Cloud storage systems like DropBox and Google Docs allow you to store, share, access and edit your documents easily on the go. This is essential if you’re travelling, however, they also give you peace of mind as a backup option for important documents and client work. Accessible via laptop or smartphones, Cloud systems can be a lifesaver when working on the go.

Time tracking and invoicing

For freelancers in particular, charging an hourly or daily rate is common practice – especially if your typical week involves working on multiple projects for multiple clients. It’s essential that these type of workers are able to accurately track their time in order to produce accurate invoices to clients, evidencing the time spent on particular accounts or projects. Time tracking software and apps like Toggl allow you to easily track your day – down to the second – segmenting clients into smaller projects including activities like client communications or meetings, as well as actually producing the work. Toggl allows you to access up to date time reports over any date range and publish the results as a PDF or .CSV file – making them email and Cloud friendly for sharing with your clients.

Another popular piece of software, featured in our article ‘Top 10 technology tools for contractors’, is Harvest – combining time tracking with the ability to generate custom branded invoices and even log expenses digitally. Having access to features like this can save significant time on paperwork for contractors on the go.

Productivity

With a wide range of software and apps for business focused on productivity, your smartphone’s app store could have the solution you’ve been looking for to a particular project management problem. Tools like Evernote function as the modern day digital planner, allowing you to take notes on the go, plan projects, collaborate and share your workings. Software like this can significantly streamline project management and account admin duties for contractors and freelancers working on multiple projects.

  1. Professional tools

professional tools

Industry bodies and resources

If you do want to take a more hands on approach, there are numerous professional resources available for contractors and freelancers, providing information on everything from setting up your business to tax and IR35 legislation.

A contractor accountant can take care of all of this for you – leaving you to focus on developing your skills, taking on new work and increasing your rates. However, if you want to do your preliminary research, respected industry information sources such as Contractor Calculator and Contractor Weekly provide comprehensive and indepth information on the logistics of contracting as well as contractor news and much more.

On top of this, as a contractor you have to self motivate in order to stay on top of the latest news, developments and techniques being employed in your industry. This is particularly true if you’re self-employed in fast moving industries such as IT. Making sure you’re up to date on the latest technology trends in your sector and possess the right qualifications and training means you’ll not only win more work, but you can charge a higher rate. There are numerous respected contractor sites focused on the IT industry – providing an essential source of reliable information if you work in this sector:

Contractor UK

IT Contractor

IT Pro

IT Contractors UK

The UK Government website also provides a black and white resource, filled with essential information on legislation surrounding the various trading models common amongst contractors and freelancers. Here you will also find information specific to setting up a Limited Company – guiding you through the steps which you or your accountant must take in order to go Limited.

Your accountant

However, if you want to save yourself a headache – utilise your accountant! As a Limited Company contractor, your accountant is a lifeline for navigating the complex jungle of legal and financial rules and regulations put in place by the Government. Handling the transition to a Limited Company can be a lonely path – and one which, if you choose to pursue, can be extremely time consuming. Your accountant should be your first port of call for helping you take the leap into contracting or make the transition to a Limited Company.

If you feel your accountant could be doing more for you, contact the contractor accounting experts at Intouch Accounting. This is what we do best, and our fully comprehensive service means that you can focus on your contracted work, while we take care of the rest.

Beyond Limited Company formation (and the associated administration), a skilled accountant can help contractors and freelancers maximise their take home pay by ensuring they’re taxed correctly – while also providing sound business advice and support.

Intouch Accounting can help you

If the prospect of becoming a Limited Company is still daunting, or you’re not sure how to make the transition, give us a call on 01202 375491. Our friendly team of expert Contractor Accountants are happy to answer any questions and discuss your situation and options. We are renowned with our existing clients for our dedicated service and account management – and we’re happy to take your call and assist you on this exciting new venture!

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.