With tighter budgets and internal pressures across industries, many people are looking to move from being permanent employees to working as contractors, or deciding for work for themselves rather than continuing to look for employment elsewhere.
Professionals such as doctors, engineers, IT contractors, lawyers and other workers in specialty trades find the option of working on a contractual basis more attractive due to benefits such as higher pay, better work/life balance, liberty to choose assignments, etc.
We understand making a switch from a permanent form of employment to contracting can be a daunting task. But if you have made the decision to be your own boss, then let us congratulate you for finally taking the leap of faith!
Contracting gives the workers the freedom to pick on a variety of projects that suit their skills, develop a work schedule that’s most convenient to them and earn as much money as they want to (and can). Moreover, as a contractor you have a number of options around how you are paid and how you pay your tax.
So if contracting is definitely the way forward for you, it is clear that you are ready to work for yourself and on your terms – so good for you!
The first step towards contracting is to consider the type of business you wish to opt for and its legal structure. This means there are various employment options – four to be precise – you can choose from to best suit your own individual requirements.
If you want to be free of all the administrative duties associated with contracting, then become an employee of an umbrella company. You get to choose the assignments you want to work on and you also don’t have to worry about falling inside IR35 legislation.
Also known as a Personal Service Company (PSC), you are the director and shareholder of your own limited company. You have control of your company’s bank account. Your pay is a combination of salary and dividends which is decided by you. This means you have more control on your take-home salary.
This is where you are paid directly by your agency through their payroll system. You are required to pay full tax and NI contributions on all your earnings to the agency. There are no statutory rights and you cannot claim any valid work-related expenses. PAYE is ideal for occasional contracts but it is not the option to consider if you want to work for multiple agencies. In this model, you also fall outside of IR35 legislation.
Considered as the most personally liable working model, you have the option of running your business as an individual. Sole trading involves less paperwork and simpler accounts to manage. You have the right to retain all business profits. You also fall outside of IR35 legislation as a sole trader. However, you have to find all your assignments yourself – unlike in other contracting models
|Working options||Umbrella payroll||Limited company|
|Advantages||Quick and easy to set up Possible to work for multiple agencies Receive statutory benefits No worries about checking IR35 legislation All tax and NI is deducted by the umbrella company, so no further taxes have to be paid Hassle-free payment system: simply enter your timesheet and expense details and wait to be paid||No personal liability Most tax efficient way of working Access to flat rate VAT scheme Can claim a wider range of expenses Complete control of financial affairs as there is no third party administrator|
|Negatives||Not suitable if you work at the same place for more than 24 months Can’t offset Travel & Subsistence expenses against your tax Not suitable for high-end earners||Subject to IR35 legislation Can be costly if you intend to contract for a short duration Can claim Travel & Subsistence expenses to offset against tax if you are outside of IR35 Not ideal for low earners|
It is often said if you don’t want the headache of managing your financial accounts and tax returns, it is wise to stick to permanent employment. But it doesn’t have to be difficult, simply find a good accountant who can guide you through the essential steps and you will feel completely confident about your decision.
This is where Bradleys Contractors comes into the picture. We can help you understand your working options and choose the most tax efficient way to operate. In order to provide our clients with the best advice we regularly assess and train our team on new legislations and procedures.
Bradleys Contractors has a dedicated team to help contractors across the UK with many services:
We assure you the peace of mind that everything will be taken care of, so you can be up and contracting as quickly as possible. Our limited company services are available starting at £50. We offer umbrella payroll solutions at £10 per tax week.