Following the introduction of the IR35 legislation, there are now only two real options open to contractors, so let’s have a look at each option in more detail.
If you're in a hurry, simply complete the ‘Quick Comparison’ form opposite to receive a ‘no-obligation’ income illustration which compares your potential earnings through a Limited Company compared to standard PAYE. Take 2 minutes now and see how much better of you’d be through a Limited Company.
So, the two options available to contractors are as follows:
An umbrella company is essentially an invoicing vehicle for contractors who want to avoid the administration duties normally associated with contracting, namely issuing invoices, chasing payments from clients / agencies, calculating tax and national insurance (NI) contributions and making payments to their bank account. It’s worth noting that because you are employed by the umbrella company, IR35 legislation does not apply.
Contractors who work through an umbrella service will submit timesheets and expenses (normally online) and then leave the rest up to the umbrella company. They will generate and send an invoice to the agency or client, chase payment when it’s due and then upon receipt of payment will calculate your tax and N.I and transfer your net pay direct to your bank account.
Naturally, there is a fee for providing an umbrella service which can vary hugely between different companies (but normally around £120 + VAT per month).
For new contractors the umbrella company is often an appealing option, as it provides a simple way to decide if contracting is for you.
Many contractors, especially those who are contracting long term or want the best possible return, normally decide to start their own limited company.
The vast majority of contractors work through their own limited company, as this is the most tax efficient method, enabling them to keep more of their income. However, these tax advantages are wholly dependant on whether they fall inside or outside IR35 “rules”.
By setting up a limited company, you have complete control of the running of your company and its bank account. Provided your contract falls outside IR35 (i.e. you're not deemed to be an employee of the client using a limited company as a disguise) you may draw dividends from the company that are not subject to National Insurance (NI) contributions.
Many contractors decide against starting a limited company because of the day to day administration and the legal requirements all limited companies have to comply with. However, with our 'Everything Done For You' limited company service, the administration burden of setting up and running a limited business is completely removed.
Everything from company formation and the setting up of your bank account through to invoicing your clients, monthly payroll, annual account preparation and corporation tax returns are all included in the service.
As a Contractor, you simply enter your expenses and invoices online and Freestyle Accounting will handle everything else and provide you with an up to date live position of your company’s financial situation.
If you require any more information or would like a free 'no obligation' illustration of your possible income using these different options, please call one of our dedicated Advisors on 0800 954 2101 or email firstname.lastname@example.org.