Creating the Business Relationships
We have established that for the majority of End Clients using an Agency to be an intermediary between them and the individual is protection against being deemed an employer for tax purposes.
However, the agency has the same problem. They don’t really want the contractor as an employee otherwise they get all the headaches; they too would like to engage a limited company. If, as someone who wishes to become an independent contractor, you are beginning to feel the focus is now on you, then you would be right! Let us consider your options:
There are two types of limited company with whom the agency wishes to engage. You can either setup your own Limited company to work through with the help of a contractor accountant like Freestyle Accounting, or you can use the services of an umbrella company. This decision is dependent upon the contractors individual requirements. We will look at the umbrella company option first:
The Umbrella Company
Under this solution, you have all the benefits of contracting without the hassle of setting up and running your own limited company. Your umbrella company raises invoices for you, chases payments and pays you on time usually within 48 hours of receiving agency / client payments.
The Agency (or End Client if you are engaged directly) loves this option because they are engaging with the Umbrella company (also a limited company) and have no employment risks. For you, as a contractor, this is a great opportunity to find out whether contracting is really for you. It is an ideal starting point as a contractor, particularly if contracting is only a short term option for you.
Operate your own limited company
Again, the agency (or the End Client) will be delighted because they are engaging a limited company. You will have a vehicle which you can use to develop your own business, as well as enjoying the fruits of sound management by not only maximising your earning capacity, but also by managing your business’s and your own tax affairs.
Our ‘Freestyle Contractor’ service is designed to help you do both, as well as allow you to spend as much time as possible developing your business and as little time as possible being tied up in administrative and statutory red tape.
We can provide you with ideas about the sound management of your business and advice on your remuneration strategy. Most contractors know that it is possible to pay oneself a salary and extract profits from the business via the payment of dividends which attract a lower tax regime than PAYE. However, there are many factors to be considered – not least the long term aims for your business – and the fact that being in business on one’s own account does bring the potential for an HMRC challenge to the tax treatment of both your company’s and your own income.