The decision to leave employment to become a contractor may seem like a daunting one.
For a number of different reasons, you can be forgiven for seeing full-time employment as the easy option. However, this needn’t be the case. And with just a little knowledge, you can quickly set a company up and be ready to embark on a long and successful contracting career.
Should I contract through a limited company?
For a variety of reasons, many contractors choose to operate via their own limited company. Of course, there are additional responsibilities associated with running a company, not least from an administrative perspective. On the flip side, there are many benefits to be had from being a contractor. These include greater working flexibility and increased tax efficiency for those operating ‘outside’ of IR35.
How do I register a company?
A limited company is registered with Companies House. When registering a company, there are several important decisions to make, such as the name of your company, the registered address, and the class and distribution of shares. An accountant should be able to guide through this process and set your company up, but if this isn’t possible, it can be done online at Companies House or through a formation agent.
Should I use an accountant?
Unless you can competently manage your own finances, you should consider engaging the services of an accountant. Accounting mistakes are often costly to rectify and can easily rouse the attention of HMRC. While there are many thousands of accountants to choose from, we suggest using a specialist contractor accountant, as they will have a far greater understanding of the contractor market and will be best placed to advise on matters relevant to contractors.
Do I need a company bank account?
A company bank account is a must. A limited company is a legal entity in its own right and as such, requires its own bank account. All payments relating to the business should be channeled through the business bank account, including payments from clients, dividend payments to shareholders and expense claim payments. When setting up a bank account, the major High Street banks are a pretty good place to start, although it is worth checking online banking options. Beware of bank charges – some banks will charge you to bank with them straight away, while others will offer free banking for a period, so be sure to shop around for the best offer.
Is contractor insurance necessary?
Contractor insurance is an important consideration. For many, there is little choice but to insure, as insurance is a contractual requirement. Others are legally obliged to insure, as is the case with Employers Liability Insurance - under the Employers Liability (Compulsory Insurance) Act 1969, Employers Liability Insurance is a legal requirement if you have employees, subject to certain exemptions. Contractors may also wish to consider IR35 Tax Investigation Insurance. This insurance covers fees incurred in the defence of an IR35 enquiry.
What about IR35?
IR35 is a tax legislation which affects contractors operating via their own limited company. The legislation was first introduced back in 2000 as a measure designed to counter tax avoidance by contractors who HMRC consider disguised employees. As HMRC are committed to 250 new IR35 enquiries each year, a base understanding of the legislation is recommended, especially for those wishing to operate outside IR35.
Should I buy an IR35 contract review?
For those concerned about IR35, a contract review is a good starting point. For a relatively small cost, an IR35 expert will review the contractual terms. Not only will this ensure that the contract isn’t falling foul of HMRC’s rules but will also take some of the stress and worry away, certainly from an IR35 perspective.
At Larsen Howie, we provide IR35 services and insurance specifically tailored to contractors. If you have questions or would like to discuss taking out cover with us, get in touch today.