Our majority of IT contractors work through their own Limited Companies and in doing so can achieve tax advantages not always available to permanent employees if they are outside IR35.
Company Set-Up can cost under £100 and many Company suppliers advertise online. Alternatively, you can apply for a limited company direct from Companies House (but this will take longer). You will also need to apply for a business bank account when your company is in place.
You will be required to fill in timesheets detailing the work you have done for the Client, and the number of hours or days you have worked in a given time period. Your manager or team leader will typically authorise your timesheet.
It is important to keep your timesheets and invoices up to date, ensuring they are sent in at regular intervals. If you run your own limited company then you are your own 'finance director', and in charge of your Company affairs. The responsibility for these matters resides with you. This may seem to be a 'downside' of contracting, but things tend just to slot into place and these tasks will become second nature after a while. Umbrella Companies generally perform these administrative tasks on your behalf.
IT contractors provide professional advice which is relied upon by others (clients). This means if you make a mistake in your work you have a direct financial responsibility to your client for the errors. Whilst you may consider the possibility remote, it does happen.
Corporation Tax is payable on your limited company's profits. This is calculated after your year end by your accountant.
Once seen as a great tax benefit, the government has gradually eroded the tax benefit of owning a company car. Whether you will benefit from such a purchase will depend on a variety of factors, such as the value of the vehicle, engine capacity and especially the mileage you would build up on contractor business. The majority of contractors will almost always be better off without a Company car, but to buy it personally and charge a mileage allowance. Check with your accountant first!
A wide variety of expenses can be legitimately claimed against your limited company, saving tax in the process. For those contractors caught by IR35, there will now be a 5% general allowance for expenses instead of an unlimited allowance, although you can still claim 'Schedule E' expenses, such as subsistence and pension payments. For contractors using umbrella companies 'Schedule E' expenses can be claimed and some companies offer 'expenses dispensations' which can provide additional tax savings.
Limited companies expecting to turnover more than the VAT turnover threshold should register for VAT - this simply means that you collect VAT on behalf of HMRC on sales invoices paid by the Client.
Given the large amount of administration required in running your company, you will need to find a good accountant to manage this work on your behalf.
Typical services performed by an accountant would include some or all of the following - make sure you check what is included in your monthly fee before signing up:
Typically, you will expect to pay £60 - £100 per month for a reputable firm. Make sure you find out what this fee includes - beware of hidden 'extras' (such as a £15 monthly charge simply for having a company car).
Many contractors have tried several accountants over the years, before settling for one they feel comfortable with. At some stage, you may feel the need to move accountants for whatever reason - the best time to do this is after a company year end, at the end of an assignment or assignment extension. So, ask other contractors for advice, or ask your Abrecco consultant for the names of a selection of providers; remember that ultimately the choice is yours.
One of the dangers of contracting is that your skills may become outdated, especially if you are working on a long contract. While the same could be said for permanent staff, they often have access to free training, and have more of a say in the development of new skills on-site.
It is worth investing in 'weekender' training courses to keep up-to-date with changes in technology, or using the increasing number of free internet and CBT based training courses.
Some employers seem willing to send contractors on training courses alongside their permanent colleagues, so don't be afraid to push for training if you can justify yourself to your employer.
We also recommend looking at the vast range of free (or low cost) online technology courses.