As a contractor, you are self-employed therefore; you are your own boss. Self-leadership offers various advantages extending from self-satisfaction to determining your own rate and increased flexibility of your working hours. However, prior to becoming a contractor, you need to consider how you want to be paid. You could become a sole trader or if the contract is short term, perhaps go via an umbrella company. However, setting up your own limited company may be your best option if you are planning to be a long term contractor.
Registering as a sole trader with HMRC means you are liable for making all your own tax and NI contributions however you may find clients or agencies will not work with sole traders direct. ICS offer a Sole Trader Service which lightens your administration load and includes invoicing your clients, receiving payments as well as chasing late payments but you are still responsible for making your own tax and NI contributions to HMRC.
Setting up a limited company may often be the most tax efficient option for a contractor that also understands the responsibilities of being a Director of your own limited company, of which there are a few. However enlisting a specialist contractor accountant to assist and advise you whilst also take care of many of the administration aspects such as raising invoices and chasing payments may help. You also need to ensure your accountant understands IR35 and they should always undertake an IR35 review for each contract you accept. ICS offer three levels of support for running your own limited company. As part of the service we offer free unlimited IR35 reviews and also inclusive insurances on our two most popular levels of support.
Contractors can also get paid through an umbrella company. This is whereby a company such as ICS, acts as an employer to the contractor. Unlike being a sole trader or limited company, as an employee of the umbrella company, they handle all the necessary paperwork while the contractor focuses on their job. The umbrella company will also pay all tax and NI contributions over to HMRC on their behalf. Often a quick set up, this is great for contractors on short term contracts or those new to contracting however always ensure your umbrella company is operating compliantly.
If you are a contractor unsure about which route to take, the team at ICS are here to discuss your individual circumstances and offer guidance. We provide specialist contractor accountancy, administration and payroll services to contractors throughout the UK. Offering the finest customer service, we understand a contractor’s individual requirements. To find out more about our services, click here or alternatively talk to us direct on 0800 195 3750.