Financial Services for Contractors

Planning your personal finances as a contractor

Contracting offers many opportunities in terms of earnings potential and flexibility but also potential financial pitfalls. You’ll no longer have access to a company employee benefits package and optimising your earnings and savings can be more complex when you’re a contractor. When it comes to mortgages, you won’t necessarily ‘fit’ the lenders’ standard criteria which can make it hard to find a good deal.

It’s important to take specialist advice on how to manage and plan your personal finances as well as those of your business. Once your accountant has advised you on how to take the most tax-efficient blend of salary and dividends out of your company, how do you make the most of your ‘personal’ money? Most contractor accountants will advise you to speak to a financial advisor, but some, like Intouch can offer a specialist service to their contracting clients

Intouch clients get all the financial support they need to overcome the specific challenges facing contractors. That’s because as part of the wider Brookson Group, we offer our clients access to expert financial advice and products that have been designed with the contractor in mind.

 

Specialist contractor financial advice

Brookson Financial have been offering expert advice and support for contractors and self-employed professionals for over 20 years, developing a deep understanding of how independent professionals work and what their financial needs are.

They are a specialist team of Financial Advisers that pride themselves in understanding the unique opportunities and challenges self-employment brings. As an Intouch client, you are able to access this specially designed range of contractor financial advice and services:

  • Competitive, contractor-specific mortgages
  • Pension advice
  • ISAs
  • Retirement Advice & Review
  • Investment & Saving
  • Retirement Forecasting and Planning
  • Illness & Life Cover
  • Business Insurance

Free Financial Health Check

The foundation of sound advice is a clear picture of your personal and corporate position combined with an understanding of your short, medium and long-term objectives. That’s why every Intouch client is entitled to a free Financial Health Check. Following a short phone call, you’ll receive a personalised report covering your current and future financial well-being and highlighting any areas of need.

Join Intouch Accounting, get so much more

Whether you’re looking to switch accountants or just starting out in contracting, with Intouch you get everything you need to run your Limited Company from an accounting and tax point of view for a fixed monthly fee. Your dedicated Contractor Accountant will handle everything for you, helping to maximise your income, while staying on the right side of the tax man. With unlimited IR35 advice and reviews and of cours access to contractor-specific financial services products, you’ll have everything you need for your contracting life.

So get in touch today

 

You might also like:

Contractor advice – mortgages made easy

How to get started as a contractor – infographic

How to switch to intouch – infographic

 

 

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.

Demystifying dividends: a beginner’s guide

For many full-time contractors, the opportunity to earn a higher salary is among their main reasons for making the move. That, along with the freedom and enjoyment that comes with owning their own business.

If you’ve decided to set up your own Limited Company, you want to be certain it’s created in the most tax efficient way. After all, you’ll be working incredibly hard for your money, so you don’t want any more going to the tax man than has to.

Dividends are a great way to maximise the income you take from your business. If you’re not too sure of what they are, here’s an introduction:

 

In a nutshell…

Dividends are essentially a method of taking income from your business. They are payments made to the company’s owners – aka its shareholders – from accumulated profits, after business-related payments such as Corporation Tax and VAT have been made.

The main rule for withdrawing dividends is that your company must have enough ‘retained profit’ in the bank to cover them. Withdrawing dividends from untaxed earnings is illegal and, if caught, you could land yourself in serious hot water with HMRC.

Any profit that remains once you’ve withdrawn the dividends can stay in the account, where the money will hopefully accumulate over time.

 

What are the advantages?

The main benefit of drawing dividends from your Limited Company is that you won’t have to pay National Insurance Contributions (NICs), regardless of your Corporate Tax or Personal Income Tax rates. That’s why many business owners choose to pay themselves a modest salary, topped up with dividends.

 

Are there any disadvantages?

The only real drawback to dividends is that there must be profit in the business in order to declare them. If it’s not turning a profit, you’re still able to pay yourself a salary or bonus, even if it means you declare a loss – a situation you hopefully won’t find yourself in.

Taking dividends is something that must be decided on by every company shareholder, which could cause issues if there were multiple shareholders or an outside investor. Yet, these cases are unlikely to apply to you.

 

Who can dividends be paid to?

Dividends are separate to bonuses and salaries and can only be paid to the shareholders in the business. Many contractors will name a spouse as their shareholder, with dividends split depending on how much share capital each person owns. This can lead to even greater tax efficiency.

 

How are dividends taxed?

Dividends are taxed as personal income. The first £2,000 of dividend income is free of tax under the dividend allowance, with further dividends taxed at the following rates:

Within the basic rate threshold (income between £8,425 and £46,350 for 2018/19) = 7.5%

Within the higher rate (income from £46,351 to £150,000 for 2018/19) = 32.5%

At the additional rate (income exceeding £150,000 for 2018/19) = 38.1%

 

Find out more

Now you’ve got a clearer idea of what dividends are, there are rules to be aware of when it comes to declaring and balancing them with your salary. We thought it would be useful to put together a guide on combining salary with dividends for people making the move into contracting.

If you feel like you might need a helping hand setting up your business, the team at Intouch can help there, too. We’ll pair you up with your own expert Personal Accountant, who will help with everything from incorporating your company with HMRC, to setting up a business bank account, to insuring your company. Make the first step by calling our team today on 01202 375293.

 

 

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.

 

How to switch over to Intouch – Infographic

Are you thinking of switching over to Intouch from your current accountant? Then take a look at our infographic to see how easy it is…

 

Switching to Intouch

IR35 consultation response – we urge HMRC to learn from mistakes, start afresh and not to rush it

8th August 2018

IR35 consultation response – we urge HMRC to learn from mistakes, start afresh and not to rush it

 

I’m spoilt for proverbial choice when it comes to the advice we’ve given HMRC in our IR35 consultation response…’ fools rush in where angels fear to tread’, ‘more haste, less speed’, ‘measure twice, cut once’… they all add up to an appeal to take the time to create a new, fit for purpose approach to compliance in the public and private sectors rather than trying to reform and roll out the broken public sector approach.

Our formal response, filed today includes solid research to counter HMRC’s view that IR35 in the public sector is ‘working’, some suggested alternatives and our thoughts on timings:

 

  • We believe that the review of public-sector reforms set out in the consultation and other government documents provides an incomplete and misleading picture of the impact of the reforms. Further review on completion of a complete compliance cycle is needed and should include all parties in the supply chain. This will help identify all unintended effects of the reform such as the volume of self-employed contractors who have had PAYE incorrectly applied, and those who are working through non-compliant payroll vehicles.

 

  • We believe that the public sector reforms have driven non-compliance rather than addressing it, and for this reason, a different approach is needed for both public and private sectors. We have proposed a solution that focuses on compliance across the supply chain using enhanced record keeping with a legal requirement to supply the relevant information up the chain.

 

  • Given our points above, we believe that April 2019 is too soon for implementation of any reform and would not allow for proper consideration by HMRC or proper implementation of any reforms by contractors or end hirers.

 

We believe our response is measured, backed by evidence and realistic; we’ve always welcomed reform that encourages compliance and there is no doubt that compliance reforms are coming to the Private sector; we just ask HMRC to remember who won that race between the hare and the tortoise!

 

 

HMRC IR35 consultation ends on August 10th. We’re responding – are you?

In last Autumn’s Budget, the government announced that it would consult on how to tackle non-compliance with IR35 rules in the private sector. In May this year, that consultation was announced, with a closing date of 10th August.

We encourage all other interested parties to contribute; that means contractors as well as end-hirers who want to continue to have access to and support self-employed contractors.

You can see the consultation and how to send your response here .

Intouch will be responding to the consultation and we will publish an overview of our response early next week.

Contractor advice: mortgages made easy

Unless you’re an expert in the area, the world of mortgages can seem like a minefield. With so many providers, terms, rates and industry jargon to get your head around, identifying the best deal for your needs doesn’t come easy.

Things can get a little more perplexing if you’re a contractor. Being self-employed brings with it great freedom and flexibility, but also some uncertainty – and mortgages fall under this bracket.

Buying a property should be an exciting experience and as stress-free as possible. We hope reading this guide will help you in the process.

 

Why is it difficult for contractors to secure a mortgage?

Working as a contractor, your income is likely to vary from month to month. It’s this inconsistency that rings alarm bells with some providers, who factor it in when calculating your ability to sustain mortgage payments.

As a Ltd Company contractor, it’s often more tax efficient to pay yourself a low salary and top it up using dividends, but this can also lead to issues securing a mortgage. A provider, for instance, may not take into account retained profit you already have in your contracting business – profit that proves you could afford a mortgage.

Of course, there are other factors that may see a mortgage application denied – poor credit history, career gaps and undisclosed credit are among these.

Essentially, when your salary isn’t fixed, providers consider it riskier to lend you money. This one-size-fits-all approach certainly doesn’t fall in a contractor’s favour, and it can seem extremely unfair.

Contractors also stand a high chance of being turned down for a mortgage even if they personally approach their own bank, which will only assess their earnings, and often conclude that they have failed the so-called affordability test.

 

How can contractors strengthen their application?

There are a number of things contractors can do to appear more ‘lendable’ to mortgage companies, but they’re not always practical or guaranteed to be successful. Some of these include:

  • Saving up a larger deposit, which from a provider’s perspective lowers ‘perceived risk’
  • Improving your credit score before you start house hunting
  • Obtaining evidence of ongoing agreements with companies to prove guaranteed future work, as well as renewed contracts
  • Limiting time off in the run up to buying a home, as providers may scrutinise you for being out of work for long periods

 

So, what’s the solution?

It may be more difficult to secure a mortgage as a contractor, but it’s certainly not impossible. And actually, with more and more people choosing to go it alone and become self-employed, there has been an increase in the number of bespoke mortgage deals tailored specifically to contractors and their unique needs.

For specialist mortgage deals, you need to turn to a specialist provider, such as Brookson Financial.

Brookson Financial’s in-depth knowledge of the contractor market has enabled them to work with lenders to develop unique products which take into account the distinct ways contractors work and earn money.

The company works with carefully-selected high street lenders to offer unique deals to people like you. You would be assigned your own, personal Mortgage Advisor, who would be responsible for liaising with lenders, estate agents and solicitors on your behalf to save you time. After all, we all know how precious time is when you’ve got your own business to run.

 

From one personal advisor to the next, if you’re looking to switch accountants or haven’t long started out in contracting, with Intouch, you’ll be paired with your own, dedicated Contractor Accountant. It’s their job to help your business run smoothly by taking control of time-consuming accounting tasks you would rather do without, while making sure that you stay on the right side of the tax man.

To find out about any of these services, call us on 01202 375879.

 

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.

How to get started as a contractor – Infographic

If you’d like to know what happens once you’ve joined Intouch as a Limited Company contractor, then take a look at our infographic to see how easy the steps are…

Onboarding for newbies infographic

The flexible working ‘movement’: where are we with it?

Today’s complex working landscape presents businesses with the challenge of meeting the demands of people with very different values, expectations and needs. Yet, they all seem to share a desire for flexible working.

It’s little wonder, then, that the flexible working movement has gained such momentum in the last decade. Employers have recognised that the traditional workplace is no longer fit for purpose. But we’re yet to reach a point where flexible working is ‘the norm’, even four years on from the introduction of laws by the UK government which gave everyone the legal right to request flexible working.

 

To use the ‘right to request’ or not

People are still unsure whether or not to use their right to request flexible working, for fear it could be perceived as a sign that they are less than dedicated to their job. In a study conducted by social media training experts Digital Mums last year, more than half (51%) of UK employees believed that asking for flexible working hours would be viewed negatively by their employer and a further 42% thought it would have a negative impact on their career.

Millennials, who are one of the key drivers of the movement, were particularly wary of not wanting to upset their employer, with two-fifths (40%) saying they’d be too nervous or worried to ask for flexible working hours, despite eight in ten (77%) wanting this way of working.

Those fears might very well be legitimate. According to a new joint report from flexible working experts Timewise and consultants Deloitte, more than 30% of workers who opt for flexible hours feel they have less status and importance as a result. A quarter of the 2,000 people surveyed also thought they had missed professional opportunities because of this.

For freelancers and contractors, there aren’t the same lingering fears, although they might have some concerns about whether working remotely could impact on the relationship with the client, if there is an expectation to be on site every day.

 

Remove the need to request

As we revealed in our previous blog on the pros and cons of flexible working, however, any concerns employers might have about what flexible working could do for business are often shown to be ill-founded.

Ask anybody who works flexibly whether they work harder and more productively now than they did when they were in a more structured setting and the answer would be unequivocally ‘yes’. Flexible workers often say they feel like they owe it to their company to go beyond the call of duty every day. While that brings up another issue entirely around work/life balance – another main driver of the movement – it goes to show how much staff value flexible working.

In a recent piece of research by SmallBusinessPrices.co.uk, more than a quarter (28%) of respondents said they value additional holiday days, sabbaticals and flexible working hours as employee benefits, over receiving a pay rise.

By promoting flexible working – rather than making employees request it – employers could find themselves with a line of new talent at the door, while holding onto the existing talent they already have in the building.

It could even help end gender discrimination in the workplace. According to the Timewise/Deloitte report, one of the biggest barriers to gender equality and pay parity is employers’ continued refusal to accept non-traditional working practices.

Timewise chief executive Karen Mattison stresses that the family structure in which one person stayed at home and another went out to work is “no longer the case for the majority of UK households” and employers need to react by changing their flexible working practices.

With the technology available today to facilitate flexible working, it’s never been a better time for individuals to dictate how long, where and when they work. More and more people are taking the plunge and ‘going it alone’ as either a contractor or a freelancer.

Of course, with Intouch Accounting by your side, you’re never alone. We are here to support you by answering any questions you may have, from assessing whether it’s the right time for you to contract or freelance, to helping you set up a Limited Company.

 

 

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.

How to set up a new company

While setting up a Limited Company tends to involve more costs and admin than operating as a Sole Trader or under an Umbrella agreement, it also offers a wealth of benefits. Among them are greater tax efficiency, less personal liability and more control over your contracting business and personal finances.

If you’re certain that your skills are in demand and are confident that you can charge your desired day rate for your services, here’s what you need to do to set up your new business:

 

Choose a company name

Here’s the fun part – what do you want to call your company? This is completely down to personal preference; would you rather an abstract name, or an informative one that lets prospects know exactly what you do? Our top tips would be to research online for inspiration, brainstorm ideas and test a few of your favourites on friends and family. Before you get your heart set on anything, check with Companies House that your preferred name is available.

 

Incorporate your company

If you’re going it alone, you’ll be responsible for ‘incorporating’ your company, which essentially means registering with Companies House. Along with your company’s name and address, you’ll need:

  • Details of the appointed directors, who’ll control the business (this is likely to be you but may also include a partner/spouse).
  • Details of the company’s shares – for instance, you may have decided on shared ownership with a partner/spouse. If so, they’ll need to agree to forming the company and the written rules, called the ‘memorandum and articles of association.’
  • To check what your SIC code is, which identifies the nature of your business.
  • To establish a company bank account, register for VAT and set up a payroll scheme.

 

Pulling together all the required information can be slightly daunting; also, how you set up your company can affect how tax efficient you are further down the line. This is why you should consider seeking advice from a professional at Intouch, who will also help to ensure that you’re clued up about IR35 tax legislation. Do this and you’ll also have much more time available to channel into the next, important task…

 

Getting your name out there

With your company created, it’s time to shout about it from the rooftops and get your name out there. Take time to research different marketing and promotional tactics; how are you going to show prospects what you have to offer and encourage them to choose YOU to satisfy their next contract?

 

At Intouch Accounting our Personal Accountants get your new company all set up for free, and work with you to help you make the right business decisions and work in the most tax efficient way. We know that taking the first steps into contracting is a big decision, so we’re happy to chat through your questions even if you’re not ready to get going just yet. Get in touch with one of our expert team members today to find out more.

 

Related reads:

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.

 

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.