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    Question Newbie Questions

    Have lost my job so am being forced to get into contracting at the moment.
    Starting out , I feel like a little child lost in a maze. I would appreciate any help that you guys can provide.

    I have an offer for a contract but need to decide whether to form my own limited company, work as a sole trader or work under an umbrella company.
    The contract is initially for 3 months with a possible extension at the end of it so I'm not sure at the moment how long I would continue contracting.
    The contract would be with an agency who would in turn sign an agreement with the end customer.

    I have done some research online and see that if I form a limited company , my take home pay would be more that a sole trader/umbrella but I would have a lot more paperwork to handle and I would have to appoint an accountant to help out.
    Can someone please help me decide if I should go for limited company or not and how can I make sure that I don't fall under IR35 ?

  2. #2

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    Quote Originally Posted by c0ntract0r View Post
    Have lost my job so am being forced to get into contracting at the moment.
    Starting out , I feel like a little child lost in a maze. I would appreciate any help that you guys can provide.

    I have an offer for a contract but need to decide whether to form my own limited company, work as a sole trader or work under an umbrella company.
    The contract is initially for 3 months with a possible extension at the end of it so I'm not sure at the moment how long I would continue contracting.
    The contract would be with an agency who would in turn sign an agreement with the end customer.

    I have done some research online and see that if I form a limited company , my take home pay would be more that a sole trader/umbrella but I would have a lot more paperwork to handle and I would have to appoint an accountant to help out.
    Can someone please help me decide if I should go for limited company or not and how can I make sure that I don't fall under IR35 ?
    Read this very good guide. You have to register but they don't spam you.

    Contractor's Guide - Accountants UK - SJD Accountancy

    Agencies don't deal with sole traders.

    What do you do job / contract-wise?

  3. #3

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    Quote Originally Posted by c0ntract0r View Post
    Have lost my job so am being forced to get into contracting at the moment.
    Starting out , I feel like a little child lost in a maze. I would appreciate any help that you guys can provide.

    I have an offer for a contract but need to decide whether to form my own limited company, work as a sole trader or work under an umbrella company.
    The contract is initially for 3 months with a possible extension at the end of it so I'm not sure at the moment how long I would continue contracting.
    The contract would be with an agency who would in turn sign an agreement with the end customer.

    I have done some research online and see that if I form a limited company , my take home pay would be more that a sole trader/umbrella but I would have a lot more paperwork to handle and I would have to appoint an accountant to help out.
    Can someone please help me decide if I should go for limited company or not and how can I make sure that I don't fall under IR35 ?
    You, my friend, are not a contractor. You are a permie forced into contracting through circumstance.

    For that reason alone use an umbrella. You will jump into a permie job as soon as the opportunity presents itself and you don't need the millstone of a Ltd co hanging around your neck.

    This is not a criticism - it's just looking at your situation in the face.

    Good luck with whatever you decide.

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    My post count is Majestic

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    I'll second what cojak said. A good umbrella company will relieve you of a lot of hassle if you aren't planning to make a long-term career of contracting. If you eventually decide to carry on contracting, you'll have plenty of time to sort out a limited company without any pressure.

    FWIW I can recommend Contractor Umbrella, who I used for a while (although I've recently gone limited). They're competent and reliable, they'll help you to get everything done correctly, and they won't get you into trouble with the tax demons.

    Best of luck!

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    My post count is Majestic

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    Who is 'forcing' you to go contracting? Is it because you haven't the cash behind you and are having to take a contract role as they appear to be coming up more often than permie roles? I would argue you will me much worse off in your first couple of contracts than permie as you have to build a warchest up for when you are not working. Too many people get giddy and spend the cash and have nothing to see them through the down times.

    You have to bear a couple of other things in mind. Contracting isn't a quick fix for permies. It's a whole different work ethic and lifestyle. You might get one contract but the next takes months to come so have to work on your warchest and be mentally prepared to be out of work every 3-6 months. You have to get your head around the way contracting works. Being a contractor is your job, the work you get is aside. Having a couple of contracts on your CV may harm your chances of going perm again and normally it is pretty hard to get a contract with only perm on your CV. You need to head one way or the other. If you plan on flitting between the two you are going to find it hard work (or no work). If you are going to keep contracting expect to travel as well.

    Do not get excited about, or bank on extensions. They have a habit of evaporating even at the last minute. The only time you have a contract is when it is signed and you are sitting at your desk. We have had posters binned in reception on the first day. Until you are in the position you have nothing and even then you can be binned at zero notice. Notice periods don't mean squat to us.

    You need to do a hell of a lot of research first, even if you are going umbrella. Check the guides to the right. Forget IR35 for now if you are going Brolly. It doesn't all apply but scan all the links anyway. Have a look at the Two References sticky and see the tricks the agent will play. I would bet a lot that the first agent will try and screw you over and keep a massive percentage. learn how to use the search method as detailed in the FAQ section. Everything you can think of and a ton of stuff you haven't yet has been done on here so there is a wealth of info there.

    If none of that scares you off then jump in! Just be forewarned and keep your eyes open.
    'CUK forum personality of 2011' - Winner - Yes really!!!!

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    If you're going via an agency odds are that Sole Trader isn't a valid option.

    Umbrella is little to zero hassle so long as you use a decent one, they're a bit less tax efficient than a Ltd, but you have no responsibilities beyond doing the contracted work well and filling in a few forms.

    Ltd isn't a massive hassle to operate, but it does carry responsibilities including statutory obligations, fine if you're comfortable finding out what you need to do, but from how your post reads I'm not sure I'd bother in your circumstances.

    As Cojak said and Nickfitz agreed it seems likely than a decent Umbrella may be your most sensible option at this point.

  7. #7

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    Just to say, I second the shouts above re: going umbrella first of all.

    When I secured my first contract I was pretty sure that contracting was for me, but even then I decided to go brolly for the first three months so that I could learn about contracting first, prepare myself for running a limited company, and then go the LtdCo route.

    To this day, the slightly higher tax that I paid in that first three months seems a bargain when compared to how much more prepared I was to run a LtdCo.

    In your case, you're not a contractor per se, so I would strongly advise against running a LtdCo. There are those who say it's easy, and it is. But to do it right, to fully understand your legal obligations, etc, that takes time and energy.

    Also, you'd be wise to heed NLUK's words above. He's Northern, so you'll have to cut through the gruff tone, but what he says is generally correct. He'll paint a worst-case-scenario picture for you, because too many people see the money we can earn and think only of that. Contracting can be harsh, and it's important you take on board what he says.

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    Default A "Forced" Contractor?

    Quote Originally Posted by c0ntract0r View Post
    Have lost my job so am being forced to get into contracting at the moment.
    Surely you don't expect us to believe that?

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    Quote Originally Posted by c0ntract0r View Post
    Starting out , I feel like a little child lost in a maze. I would appreciate any help that you guys can provide.
    Have a read of this topic which summarises some of the more common gotchas.


    Quote Originally Posted by c0ntract0r View Post
    I have an offer for a contract but need to decide whether to form my own limited company, work as a sole trader or work under an umbrella company.
    I know people who do work as a sole trader but it's unlikely that they will offer you this option because they may become liable if you don't pay your tax.

    A LTD company will help you legally avoid tax but it has a fair amount of admin and it can land you in a pile of trouble with fines and penalties plus they are a pain to get rid of if you get a permie job and want to close the company down. An umbrella is a good option to get you started, they are pretty easy to deal with and there are no nasty shocks with tax bills or fines for not getting your admin right.

    Before you ask, don't be tempted by the tax avoidance schemes offering "too good to be true" levels of take home pay - they will land you in a lot of grief in a few years when HMRC get around to enquiring into your tax avoidance scheme.

    Good luck and welcome to contracting - you have a lot to learn!
    Free advice and opinions - refunds are available if you are not 100% satisfied.

  10. #10

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    Quote Originally Posted by c0ntract0r View Post
    Have lost my job so am being forced to get into contracting at the moment.
    Starting out , I feel like a little child lost in a maze. I would appreciate any help that you guys can provide.

    I have an offer for a contract but need to decide whether to form my own limited company, work as a sole trader or work under an umbrella company.
    The contract is initially for 3 months with a possible extension at the end of it so I'm not sure at the moment how long I would continue contracting.
    The contract would be with an agency who would in turn sign an agreement with the end customer.

    I have done some research online and see that if I form a limited company , my take home pay would be more that a sole trader/umbrella but I would have a lot more paperwork to handle and I would have to appoint an accountant to help out.
    Can someone please help me decide if I should go for limited company or not and how can I make sure that I don't fall under IR35 ?
    Do you mean 'offer' or 'agent chatted to me about'?

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