New to Contracting

There are numerous excellent guides on the internet that explain exactly how to set up your company, write your CV, find a contract and pretty much everything else.  Therefore we will focus on what we know best – tax and insurance - but will provide some links to companies we know and trust for the other important things.

Trading methods and setting up a company

When you first decide to contract you will need to choose your trading method.

The most popular options are either setting up your own company or by using an umbrella company.  The choice should depend on a number of factors.  If you are outside IR35 (an area we’ll cover further on) trading through your own company is almost always the most financially advantageous option.  Equally, however, it also means the most work for the contractor.

Umbrella companies allow you to trade through them as an employee, taking PAYE salary and ultimately receiving less, but removing much of the administration involved in running your own business.  This is often the main reason for choosing to use an umbrella company, but they may also be the best option for those whose contracts are inside IR35.

If you decide to use your own company you will need to set one up.  Some accountants will do this for you, but you can just as easily do it via an online formation agent.  An internet search will bring up thousands.

Less common trading methods include going PAYE through an agency, partnerships, sole trader or offshore schemes.  With the latter you will often see businesses claiming that you can take home 85% (or similar) of your fees.  Whilst this is obviously attractive, it’s an area you need to be very careful with.  We have never seen a scheme that we’ve been happy with and the potential ramifications down the line need to be remembered.

Accountants

It is highly advisable that you use an accountant if running your own company.  There are obviously masses of accountants to choose from, but we would suggest you use one with some experience of working with contractors.

There are a number of specialist contractor accountants, all of whom garner favourable reviews.

IR35

IR35 is a massive issue for most contractors and causes much frustration and concern.  IR35 is the name of a legislation bought in by HMRC in 2000.  It was designed to catch workers who use their own limited companies but would otherwise be employees of their client (‘disguised employees’).  HMRC seek to ensure that such workers pay a similar amount of tax as permanent employees.

Over the years thousands of contractors have been on the receiving end of enquiries.  To date, contractors who have professional representation have generally had success and the HMRC vs contractors score is a handful to several thousand.  However, there will be vast numbers of contractors who pay up straight away when cornered by HMRC