Reply to: Thinking of taking the plunge as an IT Contractor

[GazCol]

I went Ltd straight from the off – but if I could do it again, I’d definitely go Umbrella for the first 3/6 months, use that time to read up on everything that going ltd entails (unfortunately it’s not just as straightforward as get an accountant to do it for you) and then take the plunge and go ltd with a much better understanding of the responsibilities that come with it.

That’s not to say I made a complete hash of it, but things would have been far less stressful had I had a complete understanding of the whole process, understood IR35 contract reviews and how to demonstrate working outside it, had properly researched which contracting accountant to select and really understood expenses & 24 month rule.

Good luck!

[LisaContractorUmbrella]

If you decide to go Ltd route make sure you find an accountant that understands the industry - a local accountant is fine for a normal business but contractors have a very specialised set of rules and regs. If the guy you visit can't fully explain IR35 and the financial implications for you then I'd look elsewhere. Or go brolly obviously

[ForBajor]

If you think that you might be doing it for a while, and you have done some research, then I would go Ltd from the outset - I did.

I did lots of research first (not on here), and spoke to a local accountant about it. I made sure I knew what to expect, so very little has really surprised me. I'm pretty sure that if I'd started with an umbrella (or Ltd but declaring myself inside IR35 for "safety"), I'd still be doing that - based mainly on the fact that I'm pretty lazy when it comes down to changing things that appear to be running successfully.

In my last permie job, I was the only permie in a team of contractors, so I had some people around me to pick their brains before I made the decision to go. I had a look at how they worked, and brushed up on IR35 before making the leap (one guy I worked with always declared himself inside, one guy said he did a few years outside and then a couple of years inside, and everyone else always worked outside - and yet they did the same roles in the same manner).

I have nothing against umbrellas (apart from those that say you can get 90%, or those that run off with the money and set up as new ones straight away), but I think that if you know what you are getting into (and if you are a programme manager then I would expect you to be able to research and understand how to do things right and wrong) then that's the way I would work from the off.

Thanks for that. I've already booked a 1:1 with an accountant to scope out what kind of effort I will need to put in, and what could be farmed out to an accountant provided the price is right. I'm thinking about the long term, and if I can upskill to run a Ltd with assistance from an accountant whilst taking on a contract I will do it. We'll see how viable and how much of a headache that might be.

[ForBajor]

I'm still of the opinion that with the assistance of a good accountant it is not disproportionately difficult to start and operate a Ltd co or else no one would be doing it.

On that note I've got a meeting with a local accountant tomorrow to find out what level of admin overheads I can expect during a financial year. I can then assess how capable I think I am of making that fly, and how much help I'd need from an accountant - and of course how much that particular privilege would cost me!

[ForBajor]

I would echo the caution on setting up a limited company - it's tax efficient and can be a great thing, but you have to put some effort in too. People who open a company and expect to sit back and do no work themselves, and learn nothing about taxes etc, tend to be the ones that get into trouble.

Yep - this is why I thought of Umbrella first - Ltd later.

[ForBajor]

Using an umbrella company for your first contract is a good move, especially if you are inside IR35 but you need to understand how their processes work. You become the employee of the umbrella company and will work under a contract of employment; the umbrella then has a business to business contract with the recruitment agency or end client. An invoice will be raised each month or week for your hours/days worked at the contract rate; when the umbrella receives payment of the invoice they will fulfill their legal obligations and pay Employer's National Insurance contributions to HMRC, they will also retain a margin for their services (usually around £100 per month). The balance is then your salary which is subject to PAYE taxes and NI contributions. You may be entitled to claim tax relief on expenses through the umbrella but only if they have an over-arching employment contract in place and only if you intend to work on more than one assignment whilst in their employment. No umbrella company should be able to offer you a higher take home than any other as we are all governed by HMRC.

HTH

Thanks for the info. There seem lots of Umbrella companies ready for me should I get a contract.

[ForBajor]

Why do you want to be a contractor?

a) Enough experience and and array of skills to apply to multiple contracting opportunities
b) A desire to work on short-term assignments and gain experience across multiple organisations and industries
c) To gain experience of being a contractor over the next 18 months to see if it works for me. If it doesn't, then I'd have learnt from experience.

[TheFaQQer]

I think it's a pretty valid approach and not one to be dismissed just because seasoned guys give you a one liner saying LTD's are easy.

If you think that you might be doing it for a while, and you have done some research, then I would go Ltd from the outset - I did.

I did lots of research first (not on here), and spoke to a local accountant about it. I made sure I knew what to expect, so very little has really surprised me. I'm pretty sure that if I'd started with an umbrella (or Ltd but declaring myself inside IR35 for "safety"), I'd still be doing that - based mainly on the fact that I'm pretty lazy when it comes down to changing things that appear to be running successfully.

In my last permie job, I was the only permie in a team of contractors, so I had some people around me to pick their brains before I made the decision to go. I had a look at how they worked, and brushed up on IR35 before making the leap (one guy I worked with always declared himself inside, one guy said he did a few years outside and then a couple of years inside, and everyone else always worked outside - and yet they did the same roles in the same manner).

I have nothing against umbrellas (apart from those that say you can get 90%, or those that run off with the money and set up as new ones straight away), but I think that if you know what you are getting into (and if you are a programme manager then I would expect you to be able to research and understand how to do things right and wrong) then that's the way I would work from the off.

[northernladuk]

I went 6 months umbrella for my first gig. I had enough on getting my head round the gig and delivering from day one to worry about the company side. It might have cost me a little bit but looking at the crap some people land themselves in trying to do it all at once I think it was money very well spent. If you are going to stay contracting then it's absolute peanuts in the long run as well.

I think it's a pretty valid approach and not one to be dismissed just because seasoned guys give you a one liner saying LTD's are easy.

[cojak]

Welcome to CUK ForBajor!

[robpow]

Of course, as with anything you have to know what you are doing. I wouldn't suggest everybody start taking their cars apart just because there happens to be manuals in the library.

The key thing to remember when running your own company is that you are ultimately always responsible for your actions. There aren't the equivalent of the many consumer protection laws that prevent individuals from getting ripped off or stung with excess charges etc.

I'm still of the opinion that with the assistance of a good accountant it is not disproportionately difficult to start and operate a Ltd co or else no one would be doing it.

What is important is that everyone's situation and mindset is different, if you know you aren't interested in learning, and perhaps even enjoying, how to operate as a company then of course this route isn't for you.

Don't be put off but also don't trivialise it!

Matt

[Clare@InTouch]

I would echo the caution on setting up a limited company - it's tax efficient and can be a great thing, but you have to put some effort in too. People who open a company and expect to sit back and do no work themselves, and learn nothing about taxes etc, tend to be the ones that get into trouble.

[LisaContractorUmbrella]

Setting up and running a Ltd is not rocket surgery, especially if you pay one of the many contractor-friendly accountancies a small fee to do the hard work for you.

Sorry but this gives the OP a completely misleading impression - running a Limited Company comes with many responsibilities and many pitfalls if you don't know what you're doing. Yes, a good accountant will help you out with information but it's up to the individual to read and understand it - a cavalier approach like this is just likely to drop the OP in it with HMRC further down the line

[robpow]

Do it. If it's for you it will work out and if not you can always go back to permie. Fortune favours the brave!

Setting up and running a Ltd is not rocket surgery, especially if you pay one of the many contractor-friendly accountancies a small fee to do the hard work for you.

Good luck!

Matt

[LisaContractorUmbrella]

Using an umbrella company for your first contract is a good move, especially if you are inside IR35 but you need to understand how their processes work. You become the employee of the umbrella company and will work under a contract of employment; the umbrella then has a business to business contract with the recruitment agency or end client. An invoice will be raised each month or week for your hours/days worked at the contract rate; when the umbrella receives payment of the invoice they will fulfill their legal obligations and pay Employer's National Insurance contributions to HMRC, they will also retain a margin for their services (usually around £100 per month). The balance is then your salary which is subject to PAYE taxes and NI contributions. You may be entitled to claim tax relief on expenses through the umbrella but only if they have an over-arching employment contract in place and only if you intend to work on more than one assignment whilst in their employment. No umbrella company should be able to offer you a higher take home than any other as we are all governed by HMRC.

HTH