First timer basics (structure, contract templates)

[Plugtop]

I'm going to be starting contracting soon, having never done it before:

I have a customer (possibly two). We have no existing relationship.
I'm doing some work total £2Kpa for another two whose systems are only set up to pay individuals (but do so without deducting tax/NI - so not PAYE) - no contract was agreed, and if a standard implied contract exists I have no power to change it
I'm fairly sure I'm clear of IR35
I imagine turnover will be less than £40Kpa, very much less this tax year
I'll probably only do this fulltime for a year or two.

How much would I save by setting up a Ltd Co at this sort of level, compared to staying as a sole trader? I can't see using an umbrella to be worthwhile given the fixed costs and low level of income.

Separate from that, a Ltd Co would be a useful thing to have around (for things like buying at auctions, where they won't talk to individuals), but if I set one up it doesn't have to trade or can go dormant after a year or two. Possibly putting equipment purchases through it (circa £1-2000pa) might be handy if they can be offset against tax, but not if it makes everything much more complex that it wipes out the saving.

I'm not afraid to do accounts myself; I imagine my accounts will be fairly simple. A cheap accounting package (seen inniAccounts mentioned here, looks useful) is another option.

Also, my customer doesn't have a contract up their sleeve, so I have to write one. Is there an off-the-shelf IR35-proof contract I can use/buy-for-cheap?

Pointers at ask-a-stupid-question howtos are always welcome

Cheers!

[Craig@Clarity]

I'm going to be starting contracting soon, having never done it before:

I have a customer (possibly two). We have no existing relationship.
I'm doing some work total £2Kpa for another two whose systems are only set up to pay individuals (but do so without deducting tax/NI - so not PAYE) - no contract was agreed, and if a standard implied contract exists I have no power to change it
I'm fairly sure I'm clear of IR35
I imagine turnover will be less than £40Kpa, very much less this tax year
I'll probably only do this fulltime for a year or two.

How much would I save by setting up a Ltd Co at this sort of level, compared to staying as a sole trader? I can't see using an umbrella to be worthwhile given the fixed costs and low level of income.

Separate from that, a Ltd Co would be a useful thing to have around (for things like buying at auctions, where they won't talk to individuals), but if I set one up it doesn't have to trade or can go dormant after a year or two. Possibly putting equipment purchases through it (circa £1-2000pa) might be handy if they can be offset against tax, but not if it makes everything much more complex that it wipes out the saving.

I'm not afraid to do accounts myself; I imagine my accounts will be fairly simple. A cheap accounting package (seen inniAccounts mentioned here, looks useful) is another option.

Also, my customer doesn't have a contract up their sleeve, so I have to write one. Is there an off-the-shelf IR35-proof contract I can use/buy-for-cheap?

Pointers at ask-a-stupid-question howtos are always welcome

Cheers!

To give you the facts, if you run a limited company with a turnover of £40k pa you don't need to be VAT registered. If you are dealing with other businesses/companies who are VAT registered, then there should be no reason why you can't be either. You won't lose out financially since whatever you charge and collect in VAT is handed over to HMRC.

Depending on your expenditure in a limited company will contribute directly to what profit you make in the business. Any profit (roughly speaking) generated in the business is subject to 21% corporation tax. If it was the equivalent profit value under self employment, you would be personally subject to income tax at 20% plus class 2 and class 4 NIC (8% on profits over £5,715 up to higher rate). Depending on your salary you set in your limited company for yourself, if your profit is below the higher rate threshold, you could be slightly better off under self employment but then you mentioned the auction aspect of the business. On these number's there may not be much difference on savings. From a commercial view point, you maybe better under a limited company for reasons you have given as well as the protection a company gives you on liabilities.

A company doesn't have to trade and can have period's of non-trading but accounts still have to be prepared on an annual basis.

Ideally, if you are entering into a contract with your clients, you should have some sort of agreement or purchase order in place for IR35 purposes and protection. I think you can get template contracts from PCG but you may have to pay for them. Setting up a company can be done either yourself directly with companies house or formation agents or get an accountant.

You should also think about business insurance.

[Plugtop]

Thanks, that's useful.

I'm not sure I want to pay £100 to join PCG just to get a look at their contracts which may or may not be suitable... anyone else provide such templates?

What would my liabilities be? I'm not planning on taking any loans, so I shouldn't have debt to worry about. That presumably just leaves being sued - would professional liability insurance cover that? Is there any difference in that respect from being Limited and sole trading? I don't have any particularly valuable equipment that I would need to insure.

[downsouth]

I believe that the PCG contracts are very good (someone else might give comment on the exacts etc), but i'd look at an outlay of £100 of being very good advice from not only the contract template perspective but from what else can be gleaned from the PCG, what solictors are going to write you a contact for that figure?

[downsouth]

Oh and a word of advice speak to an accountant, you look very ill informed trying to do this on your own which in time will only lead to problems

[Craig@Clarity]

Thanks, that's useful.

I'm not sure I want to pay £100 to join PCG just to get a look at their contracts which may or may not be suitable... anyone else provide such templates?

What would my liabilities be? I'm not planning on taking any loans, so I shouldn't have debt to worry about. That presumably just leaves being sued - would professional liability insurance cover that? Is there any difference in that respect from being Limited and sole trading? I don't have any particularly valuable equipment that I would need to insure.

Google is probably you friend here in terms of searching out a contract template but as other posters have mentioned it might be worth it for the addition services you could get.

Liabilities that I mentioned includes money you could owe to the banks, HMRC and suppliers. If you do get sued (hopefully not, but you need to think of the scenario) your insurance should hopefully cover you. Think about public liability insurance too. I think they normally come as a pair (PI and PL insurance) but speak to a broker or provider.

The difference in being limited and sole trading is that limited is a trading entity in it's own right whereas sole trading is you as the business. As mentioned in my previous post, there's also different taxes.

[SueEllen]

Think about public liability insurance too. I think they normally come as a pair (PI and PL insurance) but speak to a broker or provider.

They don't.

You normally find PL and EL together but it's very easy to find them all separately or in a combination.

Plugtop if you use the very good search facility on this site then you will find suggests about where to get Professional Indemnity and Public Liability from. Plus discussions on whether you need Employers Liability insurance. Also the PCG gives clear information on what insurances you should consider.

I strongly suggest regards of whether you take them out or not, if you drive get business cover added on to your car/motorbike insurance. It should be free or up to £30 to add it on.

[Wanderer]

I'm not sure I want to pay £100 to join PCG just to get a look at their contracts which may or may not be suitable... anyone else provide such templates?

What would my liabilities be? I'm not planning on taking any loans, so I shouldn't have debt to worry about. That presumably just leaves being sued - would professional liability insurance cover that? Is there any difference in that respect from being Limited and sole trading? I don't have any particularly valuable equipment that I would need to insure.

Not being funny but there is a lot to learn (and a fair few costs to cover) when you start up a limited company. If you mess it up then you end up paying a lot of money in penalties so definitely consider joining the PCG if you are just starting out. They will get you sorted with template contracts (reviewed for IR35), a helpline and an accountant who will sort out your LTD company formation, VAT registration, PAYE registration, dividends, self assessment and other advice.

After you've done your first years accounts you can consider going it alone but first up get some help otherwise you will be on here asking a load of naive questions which will annoy people.