Limited Company

Before you begin contracting you will be required you to set up a Limited Company for which you would become the director and shareholder.  As a shareholder you would own the company and as a director you would control the company, but the key point is that you would not be the company.  In the eyes of the Law and HM Revenue and Customs you and the company would be treated as separate legal entities.

For a fee of £99+VAT we can incorporate your company and ensure that all the necessary documents have been prepared and filed at Companies House and the Revenue.  We will also assist you with opening a company bank account, registering for VAT and PAYE.

Our ‘All Inclusive’ bookkeeping service is very popular with contractors as we undertake most of the administrative hassle, but as directors you will still be in control of invoicing the company’s sales and the company’s bank account.  On a monthly basis, you would be required to send us your records from which we would compile the company’s bookkeeping records, VAT returns, yearend accounts, P11D and provide a basis for ongoing tax planning help and advice.

We will help you structure your company to ensure that you pay yourself in the most tax efficient manner through expenses, dividends and salary.

There are a wide range of business expenses that can be claimed through your limited company such as travel and subsistence, hardware and software, professional subscriptions, business telephone, and accountancy fees to name a few.  Please see our download/publications area for free guides relating to ‘Expenses’ and ‘Contracting’.

Contractors operating through their own PSC can typically expect to take home around 70% – 80% of the income earned.

Umbrella Company (sometimes referred to as Managed Service Companies)

This is where you ‘ the contractor’ essentially become an employee of an umbrella company.  An umbrella company will typically have several hundred, if not thousands, of contracts ‘employed’ by them on a contracting basis.

Very similar to working for an employment agency, the contractor will submit their weekly time-sheets and expenses to the umbrella company who process them and invoice the client the contractor was working at.  Once payment is received, the umbrella company will deduct its fee, and pay the remaining amount as expenses and salary to the contractor. The bulk of the payment will typically consist as a salary from which the usual deductions of PAYE, Employer’s and Employee’s National Insurance will first be deducted.

The allowable expenses can be restrictive and not as generous as claiming through your own limited company.  H M Revenue and Customs have previously highlighted the abuse within umbrella/managed services companies where the contractor has generous allowances to claim expenses without corroborating evidence to avoid tax.  This set up is highly risky of prosecution so be cautious of any special dispensations or expense policies that suggest you can make claims without any corroborating receipts
It is estimated that the take home pay if working through an umbrella company is on average 60% – 65% of your contract.

Administratively working through an umbrella company is much simpler for the contractor, but you can easily pay twice as much tax.  As a result of this, and the tax legislation changes in April 2007, Umbrella Companies are no longer tax-efficient and therefore we no longer offer this service.

If you have any questions about contracting or would like any further advice please either contact phil.ward@lowsonward.com or telephone us on 0121 778 6278.