Reply to: First time contractor seeking help

[krytonsheep]

And at times I read these (.net) still pay more than Ruby & co. What is your take on this?

It may change over time. I personally would always go for a Ruby on Rails contract over .Net because you'll normally end up working with better people (or at least on a better project).

[malvolio]

And just picking up on an earlier point, PCG doesn't sell insurance, it's way cleverer than that. You should join anyway.

[nomadd]

A variation on WHS (What He Said).

..or WSS, if it's SueEllen. She gets quite upset when people call her a "guy".

[Wanderer]

What does "WFBS" mean? Sorry if it's obvious to everybody else...

What
Fred
Bloggs
Said

Where FB is the name of the previous poster. A variation on WHS (What He Said).

[Blade]

The only reason not to have a company while permie is that your employer tells you "You can't work for us and be a company director too". There is no legal impediment that I know of.

Yes, the Home | PCG is correct.

You don't have to register unless you turnover ~£70k in your first few months. The information on this website is accurate and generally good advice. Go back to the right side of the page, read all about "VAT" and "IR35". If it's not clear then you should get a specialist contractor accountant engaged and have a good old chat with them to get to grips with it. Good luck!

Thanks, good to know then it's not something I have to rush about.
In the meantime I have opened the business bank account with HSBC, and it was a lot easier than I thought it would be. It took just an hour since I am already HSBC customer.

That's a good choice:-)

Yes, I totally agree. I love Ruby development on Mac with deployment on Linux.
It's been a while now, but sometimes still today I wonder why I hadn't switched before!
In the meantime it looks like I almost forgot .NET, C# and all that crap though
And at times I read these still pay more than Ruby & co. What is your take on this? Do you agree with this or do you think there isn't much difference between Ruby and .NET, for example, as contracts go?

You could look here.

Nice page, thanks. Do you find from your experience that the figures listed on that website are accurate/realistic?

Nobody has mentioned flat rate VAT. It is in your interests to register for this as soon as you start trading. In a nutshell, you charge VAt at 20% but you pay HMRC 15% (depends on your type of business the exact %, mine is 15%). So you automatically gain 5% of your turnover for nothing. Plus for the first year, you get an extra 1% bonus. Also ask the accountant about cash accounting for VAT. That helps with your turnover when you are paying your VAT since you pay over the VAT on monies received instead of monies invoiced.

That sounds good and confirms/reminds me what I've read about this also on this site, so I was already thinking to do the flat scheme. If I go for the flat scheme, would you recommend I do this now or it doesn't matter and, as said, I can wait for now since I don't have my first contract yet? I like the idea of that extra 5% for nothing

Also people disagree on simple things for example I would say don't bother opening a business banking account now if you are going with HSBC if you have a good credit record as they open them very quickly (like the same day) and give you your account number there and then for incoming payments. However if you want a company mobile phone or another contract then yes open a business bank account asap. (Though I wouldn't do that until you have a contract.)

Yep as said mine was opened in just an hour or even less, which was surprisingly easy. Got everything sorted out so quickly including Internet/telephone banking, debit and credit cards, saving account..

I also would avoid having all my banking with one banking organisation simply because I have heard stories including one from a contractor where they have had trouble with a banking organisation and all their accounts have been affected even though the business account should be regarded as separate. In this guy's case his accounts were all frozen as fraud prevention even though he had been doing the same transactions for years. (It was our favourite Spanish bank.)

Ooops that sounds a bit scary

Good to know but your first post was long and a bit rambling.

In regards to being a company director as a permie, different employers have different clauses for it. As with all contracts if the clause is over-reaching then you can ignore it but if the clause states something like you need to ask permission to be a company director or permission to work in another business outside this employment, then you can't.

BTW being a company director doesn't necessarily mean you do any "work" for that particular company.

Makes sense. Out of curiosity if, say, I am in that kind of situation in the future, so I want to keep the company perhaps as "dormant" but I have a permie job and the company doesn't agree with me being the director of a company etc etc, can't I just make my wife for example director and that's it or would this somehow be still a problem, legally, if the contract with my employer clearly states that I can't own my own company or so?

WFBS except you pay HMRC 14.5% (for I.T. consultancy) of the total invoiced, including VAT, (so if you invoice £1000 + VAT = £1200, then you pay 14.5% so £1200 = £174), so you keep 2.6%. As FB says you get a 1% reduction, so 13.5% in first year.

The only reason I can think of not to register for VAT is if your clients (private individuals mainly) cannot claim back the VAT. Info here:

HM Revenue & Customs: Flat Rate Scheme for VAT

IANAA so happy to be corrected if wrong,

What does "WFBS" mean? Sorry if it's obvious to everybody else...

[Old Greg]

Nobody has mentioned flat rate VAT. It is in your interests to register for this as soon as you start trading. In a nutshell, you charge VAt at 20% but you pay HMRC 15% (depends on your type of business the exact %, mine is 15%). So you automatically gain 5% of your turnover for nothing. Plus for the first year, you get an extra 1% bonus. Also ask the accountant about cash accounting for VAT. That helps with your turnover when you are paying your VAT since you pay over the VAT on monies received instead of monies invoiced.

WFBS except you pay HMRC 14.5% (for I.T. consultancy) of the total invoiced, including VAT, (so if you invoice £1000 + VAT = £1200, then you pay 14.5% so £1200 = £174), so you keep 2.6%. As FB says you get a 1% reduction, so 13.5% in first year.

The only reason I can think of not to register for VAT is if your clients (private individuals mainly) cannot claim back the VAT. Info here:

HM Revenue & Customs: Flat Rate Scheme for VAT

IANAA so happy to be corrected if wrong,

[SueEllen]

@SueEllen,

thank you for being nice. Same as above: I read at least 20-30 discussions on the forums before posting. And you know what is the funny thing? It's that in most of those discussions there were several replies like yours. E.g. "search is your friend".

The reason "search is your friend" is that there is a wide variation of opinions on a subject including tax and law due to the fact that the laws in the UK are written to be interpreted rather than as black and white. This means that even the resident forum accountants have discussions on threads about a point of tax.

Also people disagree on simple things for example I would say don't bother opening a business banking account now if you are going with HSBC if you have a good credit record as they open them very quickly (like the same day) and give you your account number there and then for incoming payments. However if you want a company mobile phone or another contract then yes open a business bank account asap. (Though I wouldn't do that until you have a contract.)

I also would avoid having all my banking with one banking organisation simply because I have heard stories including one from a contractor where they have had trouble with a banking organisation and all their accounts have been affected even though the business account should be regarded as separate. In this guy's case his accounts were all frozen as fraud prevention even though he had been doing the same transactions for years. (It was our favourite Spanish bank.)

Besides this, I haven't asked anybody to hold my hand or to make decisions on my behalf. All I asked is some advice. I think it's quite different, isn't it?

Good to know but your first post was long and a bit rambling.

In regards to being a company director as a permie, different employers have different clauses for it. As with all contracts if the clause is over-reaching then you can ignore it but if the clause states something like you need to ask permission to be a company director or permission to work in another business outside this employment, then you can't.

BTW being a company director doesn't necessarily mean you do any "work" for that particular company.

[Wanderer]

Nobody has mentioned flat rate VAT. It is in your interests to register for this as soon as you start trading. In a nutshell, you charge VAt at 20% but you pay HMRC 15% (depends on your type of business the exact %, mine is 15%). So you automatically gain 5% of your turnover for nothing. Plus for the first year, you get an extra 1% bonus. Also ask the accountant about cash accounting for VAT. That helps with your turnover when you are paying your VAT since you pay over the VAT on monies received instead of monies invoiced.

I was going to mention it but then I saw that it's one of the topics covered in detail in the links on the right.

[Fred Bloggs]

Nobody has mentioned flat rate VAT. It is in your interests to register for this as soon as you start trading. In a nutshell, you charge VAt at 20% but you pay HMRC 15% (depends on your type of business the exact %, mine is 15%). So you automatically gain 5% of your turnover for nothing. Plus for the first year, you get an extra 1% bonus. Also ask the accountant about cash accounting for VAT. That helps with your turnover when you are paying your VAT since you pay over the VAT on monies received instead of monies invoiced.

[krytonsheep]

I have gradually switched to Ruby and Rails ...

That's a good choice:-)

So what rates should I be looking for?

You could look here.

[Wanderer]

Wondeful, I've read something about marking the LTD as "dormant" but I had read on some other website that I would have to shut down the company instead if I were to start a permanent job, "for legal reasons". Which sounded very weird to me in first place.

The only reason not to have a company while permie is that your employer tells you "You can't work for us and be a company director too". There is no legal impediment that I know of.

Yes, the Home | PCG is correct.

As for the VAT, do I gather this is something not really urgent then? From my reading I was of the impression that I would have needed to do this before starting work with the limited company?

You don't have to register unless you turnover ~£70k in your first few months. The information on this website is accurate and generally good advice. Go back to the right side of the page, read all about "VAT" and "IR35". If it's not clear then you should get a specialist contractor accountant engaged and have a good old chat with them to get to grips with it. Good luck!

[Blade]

Hi all! and thanks a lot for your replies.

@Bluespider,

yes, I have read those pages before posting - that's where I learned about the limited company, VAT, accountancy etc etc in first place.
As said I was just a little confused and kind of wanted confirmation I had understood well what I've read (English isn't my mother tongue either and therefore things that may sound obvious to who has some experience and is mother tongue may not sound as obvious to somebody who is not mother tongue and has no experience with these things)

@SueEllen,

thank you for being nice. Same as above: I read at least 20-30 discussions on the forums before posting. And you know what is the funny thing? It's that in most of those discussions there were several replies like yours. E.g. "search is your friend".

Besides this, I haven't asked anybody to hold my hand or to make decisions on my behalf. All I asked is some advice. I think it's quite different, isn't it?

Don't worry too much about the Company, that can be marked as dormant until you've got Money flowing through it.

Get a gig then worry about the admin afterwards, it's what most people do, it can be sorted out very quickly.

Good Luck!

Wondeful, I've read something about marking the LTD as "dormant" but I had read on some other website that I would have to shut down the company instead if I were to start a permanent job, "for legal reasons". Which sounded very weird to me in first place.

WTJS

I got a contract offer on a Friday, phoned SJD and got them to set everything up for me to start on Monday. The SJD website has an excellent guide to running a Ltd - you need to register for free to download it.

That sounds quick! I was hoping I could postpone the accountant as well as any other kind of costs until I secure a contract first, so that makes me happy.
SJD is the accountancy firm I was thinking about since I've seen it mentioned in many discussions both on these forums and on other websites.
Thanks for the tip on the guide, I visited their website but hadn't noticed about it; I will register and download it ASAP.

Definitely consider getting some advice from a proper accountant. There are a few who post on this forum. You could also look at joining the PCG who can set you up with insurance etc and good advice.

Thanks A LOT for taking the time to reply point to point!
I am sure I've read about this "PCG" already but can't remember what it is. Just to be sure are you talking about Home | PCG on freelancing?
I will do some reading on their website.

Get a bank account straight away, they might take a little while to set up. People here seem to use Santander or Cater Allen but there are lots of banks out there of course. Don't go paying a monthly fee for your banking, you want a free (forever) one. Don't worry about the VAT just yet but you will have to register when your turnover hits a certain amount.

Just arranged an appointment for tomorrow with HSBC, since I already have a personal account with them. I asked them a few questions in chat through their website and I was told they will open a totally free account for me even after the 18 months they usually advertise. They also told me the account will be opened right away when I go there in the morning.

As for the VAT, do I gather this is something not really urgent then? From my reading I was of the impression that I would have needed to do this before starting work with the limited company? Am I mistaken on this then?

I've read also about the "flat rate", is this what is usually recommended?

1 share of 1 pound is fine. If you have a spouse who doesn't work then you can give them a share too and split the dividends to avoid tax. Get professional advice before doing this though.

Cool, I will, glad to hear anyway that I haven't made any massive mistake with the shares
I know just nothing of all this stuff...

You don't legally need any insurance but some clients insist that you have Professional Indemnity and perhaps Public Liability. As a director of a one man company you don't need employer's liability insurance (unless you plan to sue yourself). Wait till you get a contract and see what insurance they require before you get it.

Note taken. And I will read more on the PCG insurance options you mentioned.

You can be a company director while working in a permie role. You just make the company dormant. You will still have to file accounts at the year end and company returns etc. Some permie employers won't let you run a business on the side as they will be concerned that it will conflict with your permie job.

Perfect

Permie salary / 1000 = hourly contracting rate. So if you were taking £50k permie then you want 50/hour or 350-400/day. Look at jobserve et al and itjobswatch.

LOL, simple and sounds like the equation makes sense for the results

Ahh, your questions aren't that dumb. It's just that most of us here learnt the hard way and there isn't really any clear cut right way of doing things. Do some more reading of the links on the right though. Have a search for nixonwilliams, they have some good stuff on their website too.

Also find read up and understand IR35.

Thank you, I really appreciate your availability and the time you took to answer. I was about to add questions on the IR35 to the original post but then I thought already that I had to read some more about it. I will check out nixonwilliams too. Thanks!

[Wanderer]

- So I have registered the limited company and got the certificate etc. Now... what's next? Depending on which website I read it looks like I need to open a business bank first and then do the VAT registration, or the other way round. Which one is correct? Or should I get an accountant first?

Definitely consider getting some advice from a proper accountant. There are a few who post on this forum. You could also look at joining the PCG who can set you up with insurance etc and good advice.

Get a bank account straight away, they might take a little while to set up. People here seem to use Santander or Cater Allen but there are lots of banks out there of course. Don't go paying a monthly fee for your banking, you want a free (forever) one. Don't worry about the VAT just yet but you will have to register when your turnover hits a certain amount.

- When I registered the company, I specified myself as the only share holder and when asked to specify the shares, I had no idea of what to enter so I left the default values (I think it was 1 share, 1 pound or something like that) since it said that I can change those values any time. What would you recommend I do about the shares?

1 share of 1 pound is fine. If you have a spouse who doesn't work then you can give them a share too and split the dividends to avoid tax. Get professional advice before doing this though.

- I have often read that it is advisable to get a pension as well as an insurance to cover myself from potential legal issues etc. I know nothing on both of these. Would you have a pension scheme/service and insurance for IT contractors to recommend?

You don't legally need any insurance but some clients insist that you have Professional Indemnity and perhaps Public Liability. As a director of a one man company you don't need employer's liability insurance (unless you plan to sue yourself). Wait till you get a contract and see what insurance they require before you get it.

- This is related to the previous one. Is it possible at all to keep a limited company while I am in a permanent role, or isn't this legally allowed for some reason?

You can be a company director while working in a permie role. You just make the company dormant. You will still have to file accounts at the year end and company returns etc. Some permie employers won't let you run a business on the side as they will be concerned that it will conflict with your permie job.

So what rates should I be looking for?

Permie salary / 1000 = hourly contracting rate. So if you were taking £50k permie then you want 50/hour or 350-400/day. Look at jobserve et al and itjobswatch.

Sorry if some of this questions may sound stupid or if you may have heard the same questions (I guess) zillions of times, but I am new to all of this as said and despite I've done some reading, I am still not 100% sure on how these things work.

Ahh, your questions aren't that dumb. It's just that most of us here learnt the hard way and there isn't really any clear cut right way of doing things. Do some more reading of the links on the right though. Have a search for nixonwilliams, they have some good stuff on their website too.

Also find read up and understand IR35.

[Old Greg]

Don't worry too much about the Company, that can be marked as dormant until you've got Money flowing through it.

Get a gig then worry about the admin afterwards, it's what most people do, it can be sorted out very quickly.

Good Luck!

WTJS

I got a contract offer on a Friday, phoned SJD and got them to set everything up for me to start on Monday. The SJD website has an excellent guide to running a Ltd - you need to register for free to download it.

[Thejacka1]

Don't worry too much about the Company, that can be marked as dormant until you've got Money flowing through it.

Get a gig then worry about the admin afterwards, it's what most people do, it can be sorted out very quickly.

Good Luck!