Completely new to contracting - a few questions

[tyke89]

Hi!

I'm new to the world of contracting:

Basically I am a recent graduate and have been offered a 6 month contract, 300/day with Transport for London, through matchtech (not I.T role but hopefully all my questions are still relevant) (Engineering Jobs, Construction, Science, Medical and IT Jobs | Matchtech)

I have worked for TfL before for 12 months on a student placement - they paid my uni (25k I believe) and the uni paid me 21k. This was all set up by my uni with little input from me regarding the contract side etc.

Matchtech says I have 3 options, PAYE (will be paid a lot less) or ltd/ umbrella company. I'm confused atm whether to sign up for an umbrella company (for £20 a week it seems for the more recognised ones) or become a ltd company.

As I understand it when I become a ltd company i pay corperate tax instead of income tax and I will then recieve more monies because the rate of income tax is greater than corperate tax.

If I join an umbrella company - (is this what my university was acting as in the example above?) it seems like a lot less hassle but i will be paid less (as I pay more tax) than becoming an ltd (but I also will have to pay around £500 for their services over the 6 months).

If i become ltd it seems it will cost around £50 to set up and then I will have to pay for the services of an account to sort out all my admin (so I'm guessing this will come close too £500 for the 6 months anyway? - no clue as never needed an accountant before!).

Will I really save that much money becoming an ltd company - is it really worth it for just 6 months? Is £500+-, for 6 months reasonable for a well known umbrella company?

Regarding expenses - apparently this is easier to do through an umbrella company and its the main reason people sign up to them in the first place?

I will very rarely be submitting expenses because I will have a zone 1-2 travel card for commuting and we very rarely travel outside these zones or london for work purposes.

Also how does leave work? Is this client / agent specific? Am i still paid £300/day for when I take my annual leave? Who determines how much annual leave I am allowed (client? agency? umbrella company?) ?

Sorry for all the questions!

Thanks

[malvolio]

Hi!

I'm new to the world of contracting:

Basically I am a recent graduate and have been offered a 6 month contract, 300/day with Transport for London, through matchtech (not I.T role but hopefully all my questions are still relevant) (Engineering Jobs, Construction, Science, Medical and IT Jobs | Matchtech)

I have worked for TfL before for 12 months on a student placement - they paid my uni (25k I believe) and the uni paid me 21k. This was all set up by my uni with little input from me regarding the contract side etc.

Matchtech says I have 3 options, PAYE (will be paid a lot less) or ltd/ umbrella company. I'm confused atm whether to sign up for an umbrella company (for £20 a week it seems for the more recognised ones) or become a ltd company.

As I understand it when I become a ltd company i pay corperate tax instead of income tax and I will then recieve more monies because the rate of income tax is greater than corperate tax.

If I join an umbrella company - (is this what my university was acting as in the example above?) it seems like a lot less hassle but i will be paid less (as I pay more tax) than becoming an ltd (but I also will have to pay around £500 for their services over the 6 months).

If i become ltd it seems it will cost around £50 to set up and then I will have to pay for the services of an account to sort out all my admin (so I'm guessing this will come close too £500 for the 6 months anyway? - no clue as never needed an accountant before!).

Will I really save that much money becoming an ltd company - is it really worth it for just 6 months? Is £500+-, for 6 months reasonable for a well known umbrella company?

Regarding expenses - apparently this is easier to do through an umbrella company and its the main reason people sign up to them in the first place?

I will very rarely be submitting expenses because I will have a zone 1-2 travel card for commuting and we very rarely travel outside these zones or london for work purposes.

Also how does leave work? Is this client / agent specific? Am i still paid £300/day for when I take my annual leave? Who determines how much annual leave I am allowed (client? agency? umbrella company?) ?

Sorry for all the questions!

Thanks

Can't answer umbrella questions, have never used them, but basically you are their employee and follow their rules and are paid as an emplyee.

For the rest, read the First Tiimer guide linked on the right of this page, then go to www.pcg.org.uk, download and read their Guide to Freelancing, then ask questions. Then you will get polite answers to informed questions

HTH

[jamesbrown]

Am i still paid £300/day for when I take my annual leave? Who determines how much annual leave I am allowed (client? agency? umbrella company?) ?

Paid leave is a permie benefit. The absence of permie benefits should be reflected in your rate. If you work through an umbrella, I believe they hold back some of the invoiced amount for leave, but they're just managing something that you can do yourself more effectively (i.e. build up a warchest). Check some of the preliminary guides, and you'll probably find you have a different set of questions emerging....

[Wanderer]

Matchtech says I have 3 options, PAYE (will be paid a lot less) or ltd/ umbrella company. I'm confused atm whether to sign up for an umbrella company (for £20 a week it seems for the more recognised ones) or become a ltd company.

Put your numbers into this calculator and you will find that on 300/day you will have about £950/month more in your pocket (presuming you are outside IR35). If you do go LTD then you absolutely must sign up with an accountant (a few really helpful ones post on this forum) otherwise you end up in a pile of trouble. You also need to make sure you know your IR35 status and the accountant can help advise you of this.

Like malvolio says, you need to read the "First Timers Guide" and check out the PCG, they offer a lot of good stuff.

If you can't be bothered with all this, it's too complicated or too scary then just go umbrella or PAYE and have an easy life. If you want an extra grand a month in your pocket and flexibility to structure your tax affairs how you want them then go LTD.

Good luck!

[TheFaQQer]

Matchtech says I have 3 options, PAYE (will be paid a lot less) or ltd/ umbrella company. I'm confused atm whether to sign up for an umbrella company (for £20 a week it seems for the more recognised ones) or become a ltd company.

As I understand it when I become a ltd company i pay corperate tax instead of income tax and I will then recieve more monies because the rate of income tax is greater than corperate tax.

If I join an umbrella company - (is this what my university was acting as in the example above?) it seems like a lot less hassle but i will be paid less (as I pay more tax) than becoming an ltd (but I also will have to pay around £500 for their services over the 6 months).

If i become ltd it seems it will cost around £50 to set up and then I will have to pay for the services of an account to sort out all my admin (so I'm guessing this will come close too £500 for the 6 months anyway? - no clue as never needed an accountant before!).

If you join an umbrella, then they take the hassle out of running a company - assuming that you view running a company as hassle. If you're not going to continue contracting, then there is little to no benefit really in having a Ltd company. You'll pay £80+ a month for accountancy - plus probably some more if you are going to close the company down after a year of trading.

Will I really save that much money becoming an ltd company - is it really worth it for just 6 months? Is £500+-, for 6 months reasonable for a well known umbrella company?

You need to do the sums - have a look at what an accountant is going to charge. Have a look at how much money you are expecting to earn and how you plan to take that out of the company. Only you can really answer whether it is worth it or not.

Regarding expenses - apparently this is easier to do through an umbrella company and its the main reason people sign up to them in the first place?

No it's not. If you work for someone else, then you are bound by their expenses rules. If you have your own Ltd company then you know what the expenses rules are and can claim any of them. Whether HMRC would consider the expenses as allowable without incurring a benefit in kind or not is a different question - you need to know the rules before you run a business.

I will very rarely be submitting expenses because I will have a zone 1-2 travel card for commuting and we very rarely travel outside these zones or london for work purposes.

You'd be surprised at what expenses might be incurred. If you are travelling to a temporary workplace then you can claim your travel - if you aren't, then you can't, for example. If the workplace isn't temporary (e.g. you only plan to do the one contract), then you can't claim the expenses but there might be other things that the company buys that you could claim.

Also how does leave work? Is this client / agent specific? Am i still paid £300/day for when I take my annual leave? Who determines how much annual leave I am allowed (client? agency? umbrella company?) ?

If you aren't doing any work, then the company (whether that is Ltd or umbrella) is not going to get paid for it. That applies whether you are taking holiday, bank holidays or sick days. If you want them paying, then go PAYE. These days, umbrella companies will pay for holiday as you are their employee - some offer different ways that this works in practice, though. Generally, you decide how much holiday you want to take - last year I had 50+ days when I could have worked but didn't. This summer, I'm available for two days work in a five week period - whether your client would accept that is something that only you and they can decide, though.

[Contreras]

If i become ltd it seems it will cost around £50 to set up and then I will have to pay for the services of an account to sort out all my admin (so I'm guessing this will come close too £500 for the 6 months anyway?

£500 is a tad optimistic imho. Bear in mind the effort for the accountant is not much different whether it's for 6 months or a year (monthly fees just spread the cost of end-of-year accounts across the year), and there will be additional costs to wind up the company.

[NotAllThere]

If the contract is the only contract you'll have (either via ltd or via brolly) then travel and subsistence expenses cannot be claimed. Often, brollies only allow t&s expenses.

With a ltd, the ltd co gets paid by the client (or agency). Out of profits, the ltdco pays dividends to shareholders (i.e. you). These come with a tax credit, so there is no further tax to pay (unless you're a higher rate tax payer). Ltdco pays you a small salary. Salaries have to be taxed and NI deducted. They also require a payment of employer's NI. You are in control of the company.

With a brolly, the brolly gets paid, deducts it's fee and any expenses. Then it calculates how much tax, employer's NI and employee's NIC need paying, and deduct that. Then they give you the remainder, plus the amount of expenses. They retain some of your money on your behalf to cover holidays, sickness. They control your money.