Tax questions

[Belle]

Just about to move into the contracting world and have a couple of questions – if anyone can help me out that would be great.

Assuming I fall under IR 35, I understand that if I join an umbrella company, they do all my invoicing and chasing up of payments (for a fee!). Some umbrella companies I notice pay out weekly or monthly depending on my preference. Am I correct in assuming that the payment s I get are minus any tax owing and health insurance payments. Therefore, is there any need to complete an end of year tax return?

If I form my own limited company instead and work through an accountant, I understand I come out better off (depending on my expenses) but need to invoice the client myself and therefore chase up payments from clients:
Have most people found this problematic?
Also, do I invoice weekly or monthly (or does this depend on each client)?
Do I only pay tax at the end of the financial year based on my earnings and expenses so therefore I get my full rate paid with each invoice, but have to put some aside some to pay my tax at the end of the year? Is this how it works?

I know I could get in contact with an accountant for these questions but figured you lot are cheaper

[Alan @ BroomeAffinity]

Some might say that if you are caught by IR35 that you should change your working practices so that you are not. That might be less starightforward than it sounds so assuming you are IR35-caught, then the options are generally "umbrella" or "ltd". Remember, you can only claim expenses through either of these if you incur them so there is no real advantage either way with expenses (regardless of the brollies' claims). With a ltd you can save about 5% on the VATFRS and another 5% allowed for expenses so its normally financial better.

However, you have more work with your own ltd. Invoicing and money chasing is often (but not always) taken care of in a self-billing scheme. Yuo need to make your own tax calculations and provisions normally with the help of an accountant.

So it may be more to do with your desire to do a bit of work in the admin than a financial decision if you a definitely inside but I'd get an expert to review your contract and working practices before committing either way.

Speaking to an accountant may be a good first step. Most of us will talk to you for no fee.

[TheFaQQer]

Just about to move into the contracting world and have a couple of questions – if anyone can help me out that would be great.

Assuming I fall under IR 35, I understand that if I join an umbrella company, they do all my invoicing and chasing up of payments (for a fee!). Some umbrella companies I notice pay out weekly or monthly depending on my preference. Am I correct in assuming that the payment s I get are minus any tax owing and health insurance payments. Therefore, is there any need to complete an end of year tax return?

If I form my own limited company instead and work through an accountant, I understand I come out better off (depending on my expenses) but need to invoice the client myself and therefore chase up payments from clients:
Have most people found this problematic?
Also, do I invoice weekly or monthly (or does this depend on each client)?
Do I only pay tax at the end of the financial year based on my earnings and expenses so therefore I get my full rate paid with each invoice, but have to put some aside some to pay my tax at the end of the year? Is this how it works?

I know I could get in contact with an accountant for these questions but figured you lot are cheaper

Oh dear

Have you read the first timers guide?

1. If you work through an umbrella, then IR35 is irrelevant. If you work through your own Ltd, then you may be inside or outside IR35 (I know a couple of people that always pay IR35 just in case).

2. Unless you are going direct, you don't invoice the client. You invoice the agency, who invoice the client. Some agencies will do self-invoicing, whereby they raise the invoice on your behalf when you send in a timesheet.

3. Invoicing frequency is determined by the contract.

4. You pay yourself what you want to pay yourself. You pay tax on it. That may be PAYE salary, or dividend, or both. You pay your NI, corporation tax and VAT when they demand it - quarterly or at the end of the year.

I really suggest you read the first timers guide here and / or on the PCG website and / or at SJD before you make this leap - it's pretty clear that you need to do some more research before starting.

Also, have you looked at the contract market before making this leap? It may be that you are better off staying where you are until the market looks a bit better - not knowing what you do, I don't know what the market in your sector is doing. That said, I don't know what the market in my sector is doing at the moment, because I'm in contract for another 5 months or do.

[TheFaQQer]

Speaking to an accountant may be a good first step. Most of us will talk to you for no fee.

You may find them less stroppy and argumentative than some of us on here, too

[Alan @ BroomeAffinity]

You may find them less stroppy and argumentative than some of us on here, too

That depends. It can be pretty exasperating dealing with uninformed newbies!

[NotAllThere]

From reading these forums, that one of the downsides of using a brolly, is that if you don't get paid by the client, you have to rely on the brolly to chase. If you are ltd. you handle all that yourself and can be considerably more effective.