The pros and cons of a Limited Company for a contractor

After much deliberation, you’ve decided to go it alone and set up as a contractor. You’ve polished your CV and LinkedIn profile and have started looking for your first contract, but you’re yet to decide on one important factor: your new company’s trading structure.

As a contractor, you can either choose to set up as a Limited Company, a Sole Trader or work under a so-called ‘Umbrella’ agreement. This article examines the main pros and cons of operating as a Limited Company.

Pros: 

Tax-efficient

Registering as a Limited Company tends to be the most tax-efficient way of operating, particularly if your annual income is likely to exceed £40,000. As a director and shareholder in the business, you can opt to take your income in the form of dividends, which will reduce National Insurance costs.

Claimable expenses

Further savings can be made through claiming back certain business expenses, such as home office costs, childcare and mileage.

More control

As the director, you make the decisions and have full control over how your business is run, as well as your personal income and therefore rates of tax. This means no compromising with partners, or relying on third parties to collect payment for your services.

Limited personal liability

With a Limited Company, your personal finances are separate from business assets. So, if something were to go wrong, you’d only lose money from the company.

More professional image

Trading as a Limited Company gives off a more professional image, which can help you to attract and retain clients, particularly larger ones.

 

Cons:

More administration

As director, you have to ensure that your business is compliant with company law and are required to do everything from filing accounts to preparing tax returns and general bookkeeping. It’s down to you to familiarise yourself with the punitive IR35 legislation, too.

Greater responsibility

Acting as director does carry considerable responsibility. Not only will you have to conduct admin tasks on a regular basis, but it’s your duty to ensure that all information is accurate and submitted on time.

Associated costs

There are several costs related to setting up and running a Limited Company, namely those related to administration, filing and accountancy.

 

At Intouch Accounting, our Personal Accountants offer expert advice on the most suitable trading structure for your future business. We’ll manage the company formation on your behalf and relieve you of those time-consuming and often complex administrative duties. As experts in IR35, we’ll tell you everything you need to know about the legislation. Get in touch today to find out more.

 

You may also be interested in:

Venturing into contracting? Download our free guide now

Calculate your take-home pay and find out if Limited is right for you

Contractor Accountants – do you get what you pay for?

 

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.

 

 

Start contracting with confidence in 2018

Starting a long-term career as a contractor or freelancer in 2018 has become more attractive than during any time in the last two years. If you’re looking for independence and have a skill set that matches increasing current demand, then it’s possible to both ‘have your cake and eat it’, in 2018!

 

Clarity of employment status

The turmoil that was predicted from the middle of 2017 regarding changes to IR35 (the legislation that determines your employment status and therefore your potential tax efficiency as a contractor) has not materialised. The possibility of further IR35 change in the private sector has been deferred until the public sector changes can be reviewed and lessons learned.

Meanwhile, day rates are also stabilising as employers who sought to pass the burden of employer’s National Insurance contributions entirely onto workers are experiencing resistance.

HMRC’s employment status tool (CEST: ‘Check Employment Status for Tax’) also helps; it’s not perfect, and it’s still advisable to take professional IR35 advice, but when answered openly the questions provide a pretty accurate answer.

This increased level of clarity puts the contractor in the perfect position to grasp the opportunity, and begin to enjoy the freedoms of freelancing – all good reasons to rejoice in 2018!

 

Demand for skills 

Brexit and other Government promises to deliver on infrastructure projects and technology change, are creating huge demand for IT and related skills across the UK.

Employers are still preferring to keep employment costs under their control by engaging flexible workers, under flexible or zero-hour contracts. And anti-avoidance rules are also settling down with engagers being more pragmatic and accommodating (rather than issuing blanket edicts) in order to attract and retain talent.

All good news for the 2018 contractor.

 

Taking the leap into Limited

Are you ready to have your cake and eat it? Embrace the quality of life, freedom and flexibility of being your own boss, as well as increased take home pay?

If so, there are always choices of which trading model you should trade under. As a rule of thumb (only – there are always exceptions), you should consider the following:

Semi or low-skilled workers – If you are semi or low-skilled or provided services at or near the National Minimum Wage, then using a Limited Company is not likely to be the most suitable vehicle for a number of reasons. If you’re in this category and being put under pressure to go limited, you should take independent advice.

If you’re able to choose your preferred solution, then an Umbrella organisation should give you good advice. Beware the shady Umbrellas (pun intended) though – FCSA accreditation is a must. For others with perhaps fewer expenses that can be claimed, the best solution may well be to use a simple payroll bureau, where the fees you pay are lower and the rights you get more comprehensive.

 

Skilled or ‘Knowledge Workers’ – If you’re a ‘Knowledge Worker’ or skilled in a particular trade or profession, then a Limited Company can provide you with the best solution from several perspectives. For individuals who are independent and outside of the supervision, direction or control of the hirer, there will be advantages in your take home pay. You’ll have increased flexibility and commercial credibility, but you’ll have to protect yourself for illness or inability to work (usually through insurances). Ask for assistance from a contractor accounting professional from the beginning and get off to a good start.

 

Contracting advice from experts

If you’re thinking of setting up as a Limited Company contractor, Intouch can offer more than just an accounting service. From set-up and insurance to tax and IR35 advice, your Personal Accountant will be
there to help you start your journey with confidence. We know that taking your first step into contracting is a big decision so we’re happy to chat through any questions you have even if you’re not ready to get going just yet.

 

You may also be interested in:

Venturing into contracting? Download our free guide

IR35 FAQs

Intouch current joining offers

 

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.

 

The New Tax-Free Childcare Scheme

The New Tax-Free Childcare Scheme – how will it help contractors?

 

The recent Budget revealed more details about the new Tax-Free Childcare scheme, but what does this mean for contractors? Well the good news is, unless you want to, you’ll no longer have to mess around with childcare vouchers or setting up an Employer’s Scheme when you might be the only employee! And, perhaps most importantly, you will get more through the new Scheme.

 

The changes are a little way away yet and if you’re already an Intouch client, your Personal Accountant will be able to offer you advice and guidance nearer the time of the scheme being rolled out.

 

In this blog we address the top 12 questions contractors and freelancers will want answers to now.

 

1. When does it launch?

The scheme will start being rolled out from early 2017, firstly to those parents with youngest children.

You will be able to open an account online, which you can pay into for the cost of your childcare with your chosen registered provider. As soon as your youngest child becomes eligible you will be able to apply for any other children you may have.

 

2. How will the government support it?

For every 80p you pay in, the government will add 20p. They will top up the account with 20% of childcare costs up total of £10,000. That’s the equivalent of up to £2,000 per child, or £4,000 per child with a disability.

 

3. What’s the cut-off age?

Children up to the age of 12 and children with a disability up to the age of 17.

 

4. Who is it available to?

Parents who work and where individual earnings equal approximately £115 per week and not more than £100,000 per year.

 

5. What about your employer?

Unlike the current Employer-Supported Childcare scheme, you don’t need to rely on your employer to offer the new scheme to you. Any family that qualifies (see question 4) can apply. So if you run your own Limited Company you won’t have to go through the additional administration of setting up an employer-run scheme when you might be the only employee.

 

6. What about self-employed parents?

Freelancers are not being left out. Self-employed parents can get support through the new Tax-Free Childcare scheme.

A ‘start-up’ period will be introduced by the government, to ensure that those parents who are self-employed won’t have to reach the minimum weekly earnings threshold of £115. If parents are on paid or unpaid paternity/ maternity leave, paid sick leave, or adoption leave then they too will be eligible.

 

7. What’s happening to the Employer-Supported Childcare scheme?

Employer-Supported Childcare (childcare vouchers) will continue to run but won’t be available to new entrants from April 2018. If you’re planning on using it past this date, then you can continue to do so for as long as your employer offers it.

You don’t have to move across to Tax-Free Childcare, although the government predicts that it will be open to more than twice the number of parents as Employer-Supported Childcare.

 

8. Can other people pay into your childcare account?

Yes! If you have generous family members or friends then they can contribute.

 

9. What about the free childcare entitlement?

The new Tax-Free Childcare scheme will run alongside the 50% increase to free childcare (to 30 hours per week) for working families with three and four year olds from September 2017.

 

10. Will it be complicated to use?

The government intend to make the process as simple as possible. You will have to reconfirm your circumstances every three months.

 

11. What if you don’t use the money you put into your account?

If you decide to stop using the scheme, or if your circumstances change, you can withdraw the money from your account whenever you wish. You will, however, lose the money the government has contributed towards your payments.

 

12. Which scheme is best for you?

This all depends on your circumstances, but here’s a quick overview:

Tax-Free Childcare – who wins?

  •  Self-employed people or couples earning less than £100,000 each. They are eligible for this scheme but can’t get childcare vouchers
  • Parents who have more than one child and whose childcare costs are high. Under this scheme help increases with the number of children, unlike vouchers which are limited regardless of the number of children.

 

Childcare vouchers – who wins?

  • For those earning between £100,000 and £150,000 the vouchers are the better option.
  • Couples where one parent doesn’t work – although they are not eligible for Tax-Free Childcare, the employed parent is eligible for vouchers.
  • Basic rate taxpayers who pay less than £9,336 in childcare costs. Below this threshold the amount you save with vouchers exceeds the amount you can save with Tax-Free Childcare.
  • Higher rate taxpayers who pay less than £6,252 in childcare costs. Below this threshold the amount you save with vouchers exceeds the amount you can save with Tax-Free Childcare.
  • Additional-rate taxpayers – anyone earning £150,000 or more isn’t eligible for the scheme but additional-rate taxpayers can claim vouchers.

 

Find out more about childcare vouchers.

 

So what’s next?

More information will be made available ahead of the scheme’s launch and Intouch Accounting will be first to announce any developments, so keep a close eye on our blog section for the latest updates.

 

We know how important preparation is when you’re contracting whilst looking after a family, that’s why we’re here to inform and aid you in any way we can. Got questions about the new scheme? Simply leave us a comment and we will get back to you.

 

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.