IT contracting?

[Case]

Just starting contracting and confuddled about how to get paid Oo

Some people say form a Ltd company do your own tax and insurance ect, some say Umbrella co. is best but if so which one? and some say stick with PAYE.

Any of you guys work this way and have any advice?

 

[Chrystina]

I suppose you mean in UK?

When I used to be a freelance game developer all I had to do was to tell the Inland Revenue that I'm self-employed now (google the websites if needed) and that was about it.
You get paid by the guys you work for of course. You have to hand them invoices and they pay you. As simple as that. Best practice is to open a new bank account for your work (will save you problems with the IR when it comes to the Self Assesment at the end of the tax year)... Keep strict records of your income and outgoings.

More info can be found on all the websites avaiable and there are quite a few "Starting up your own Business" (that's basically what you're doing when you get contract work) guides...

well, good luck!

 

[cHodAX]

Aye good luck

 

[Ballard]

Ok mate, I have spent along time contracting around the world (im from NZ originally) the last three years in the UK. Your choices are creating and running a limited company or working under an umbrella company scheme. There is also a third option A limited company managed by a third party. I have worked under all three schemes. I will give you a asummary of the pros and cons below;

1 - Your own limited company.

To do this your contract will need to be IR35 compliant. i.e. It must be obvious you are a contractor and not just an employee working thru a company to avoid tax. Generally speaking you are a bona-fide contractor if you are likely to work for more than one organisation and work on a 'project' basis. There are a lot more clauses and small print tho and generally speaking IR35 insurance is a good idea (if the IRD investigate you and prove you should not be working under a limited company it will pay for the court costs and any penalty settlement)

Benefits: Maximum Income. A limited comany that you run yourself is the best way of keeping as much of your gross income as possible. There will be a setup charge for registering your own company ( £200 ish iirc) and also you will need to get an accountant to do your books at the end of the year (varies alot but will be £500+ ). You will be able to claim alot of tax deductable expenses and will pay yourself via dividends avoiding much of the higher tax bands.

Disadvantages: A lot of work. You will spend alot of time filling in forms, collecting receipts and if the IRD decide to audit your company it can be alittle hair-raising.

I would only do this if you are prepared to put some time in learning about tax and are making a reasonable income ( say £40 an hour minimum )


2 - Umbrella company

A little complicated to explain, best you look on the net.

Pros - Easy, Still alot better than being employed by the company in terms of take home pay. Do not need to worry about IR35.

Cons- You will not be as tax efficent as either of the other options.

Ideal for people with little contract experience and lower rates ( sub £35 ). It will likely cost either a % of your income (something like %1-2 ) or a weekly charge ( about £20-25 ). Worry free way of contracting

3 - Managed limited company

An agent company will establish a company for you and run it including doing your taxes at the end of the year. You will be paid a token base salary with the rest being paid thru dividends and tax deductable expense claims.

Pros: Most of the benefits of the first option but without all the admin overhead. The agent will arrange your contract to be IR35 complaint and also will handle IR35 insurance on your behalf (if they dont do this do not go with them!! )

Cons: generally the charge for this service for something in the order of £35 a week

I liked this scheme, but the same as the first one it has a cost effective point where if you are making less than a certain amount an hour you are better of going with an umbrella company.


Summary:

Highest% of take home pay is option 1 followed by option 3, with option 2 in last place.

Least amount of admin work for you to do is option 3, very closely followed by option 2. And option 1 is WAY in last place.

So thats a quick summary of the pros and cons of each option. I hope its of some use to you. My personal favourite is the last option, but whatever option you choose know that you are far better of than the people conventionally employed

Good luck your first contract can be very scary.

 

[Case]

Cheers for the advice really useful, for now I've decided to go with an umbrella co. got a decent one well I hope charging £19.95p/w and on average month making me about £250 richer or so they say.

Can always change later i guess

Anyway cheers fellas