A few noobie questions

[bretterick]

Hi All,

I am thinking about moving from a consultancy role I do (perm employed), to possibly going into Contracting. I see it as a similar thing in that I work with Clients for the duration of a project (few months) before moving onto the next. The difference being that I get to be my own boss.

I have had a look around the site (some very helpful info by the way), but would like some peoples opinions on a couple of things that are a bit unknown to me.

Ltd or Umbrella Company - I know both have pros and cons but wanting to understand what route is better depending on certain scenarios. I'd ideally look at forming a limited company but would that be advised for the first jump into contracting?

Job Opportunities/Contracts - I have seen some suitable contracts advertised through a variety of Agencies that are day rate. Is it likely that a prospective 'client' would envisage the applicant be a Limited company, and thus the 'contract' be worded that way. Or is it likely that this would be a discussion point following interviews etc? I assume that there is more back and forth when it comes to the contract than there would be for an employment contract?

Notice Periods - My notice period is a lot longer than the typical 4 weeks, I'm wondering if anyone else has had the issue when moving into contracting and how they tackled it? Anything over 4 weeks seems a long time for a client to wait, but obviously its a risk handing in my notice before I have secured anything.

IR35 - This is one of my concerns as I don't quite understand the implications. I would be heavily reliant on an accountant in this situation. Is this normal or as contractors do you take it upon yourself to know all the ins and outs (especially initially). There are also certain contents of a contract that can mitigate against falling into IR35 (from what I have read), is it common practice to ask for clauses etc to be put into the contract?

I realise the questions above are a bit vague, but just looking for some opinions from people with the experience as its a bit daunting making the transition and deciding routes to take etc. I also realise that I might be worrying about somethings too much, but I want to do things the right way.

Thanks very much for the help in advance

Cheers

[cojak]

Welcome!

You'll find a lot of answers to your questions within the CUK website.

On the right you'll find CUK Navigation. >>>>>>>>>

Look down and you'll come to the First Timers section. Have a read through there.

Umbrella or Ltd? Look here: Setting up your company - Ltd or Umbrella?

Basic expenses questions answered here: Contractor Expenses - How to claim Travel and other expenses via Limited Company or Umbrella

Then pay particular attention to IR35.

And here are the rules when using company credit cards: http://www.hmrc.gov.uk/payerti/exb/a-z/c/cards.htm

If you go into the Accounting/Legal forum you'll discover the thread Basic advice when running your own contractor business.

Guide to Contracts also has some good articles.

And finally - accountant recommendations - Ta-da!

Happy reading!

[cojak]

Oh, and you need to hand in your notice and then start looking for a contract, not the other way around.

[LisaContractorUmbrella]

When you undertake your first contract there will be a lot to think about and a certain amount to worry about (especially if you haven't done your preparation); for this reason many people go to an umbrella company in the beginning - it just gives you a bit of breathing space. If you decide you hate contracting in the first couple of months it also means that you don't have the hassle of shutting down the Ltd Co that you've just set up. Agencies won't really be concerned one way or another as, either way, they will be contracting with a Ltd Co - an umbrella will engage with the agency via a business to business contract and with you via a contract of employment. If you have a PSC you will enter into a B2B contract with the agency. Moving from an umbrella to PSC is easy as you will just need to give notice to terminate your employment with the umbrella and then, during that time, you can set up your company.

Which is best for you really comes down to your attitude to things - if you are well organised with money and with paperwork then a PSC would probably be an easy route for you; you wouldn't find it a hardship to put money aside for your tax and VAT payments and preparing invoices, recording bank transactions and filing receipts wouldn't be a chore. If, however, you hate paperwork and money burns a hole in your pocket as soon as you get it an umbrella company would be a better idea as the paperwork is done for you and your tax is paid at source.

IR35 is something that's worth reading up on - I think Cojak has pointed you towards guides on the site - HMRC don't do that many investigations but, when they do, you are likely to be tied up in knots for quite some time. If you are outside IR35 you can draw dividends from your company, if you are inside your earnings are subject to PAYE - the financial difference between the two plus interest would be due to HMRC if you get it wrong. You can try and get whatever you like added to a contract but, if the additions don't accurately reflect your working practices then the contract won't be worth the paper it's written on in reality. HMRC would look at what you do and whether or not you are really in business on your own account or are really an employee in disguise.

Good luck with whatever you decide

[bretterick]

Thanks for the info!! Its appreciated

[northernladuk]

Thanks for the info!! Its appreciated

It's

[PerfectStorm]

Don't be put off the limited company route because of tax and filling in forms - the accountant keeps tabs of all that for you, and thus far my only involvement with tax has been the accountant saying once a quarter "pay £xxxx to this HMRC bank account" for VAT. The other taxes, similarly the accountant advises on and they're kept in a virtual 'pot' (i.e. not listed as withdrawable money on my profit and loss summary which I get every month) so that they can be paid when they're due.

There was a lot of activity in the first few weeks of setup but my monthly responsibilities now in running a company take about 20 mins to half an hour per month. And it's the difference between taking home 75-80% of your day rate versus 55-60% from an Umbrella. Don't know about you, but my solution to having "money burn a hole in my pocket" isn't to let it burn a hole in someone else's instead

In for a penny, in for a pound! (or at least 75% of one )

[LisaContractorUmbrella]

Don't be put off the limited company route because of tax and filling in forms - the accountant keeps tabs of all that for you, and thus far my only involvement with tax has been the accountant saying once a quarter "pay £xxxx to this HMRC bank account" for VAT. The other taxes, similarly the accountant advises on and they're kept in a virtual 'pot' (i.e. not listed as withdrawable money on my profit and loss summary which I get every month) so that they can be paid when they're due.

There was a lot of activity in the first few weeks of setup but my monthly responsibilities now in running a company take about 20 mins to half an hour per month. And it's the difference between taking home 75-80% of your day rate versus 55-60% from an Umbrella. Don't know about you, but my solution to having "money burn a hole in my pocket" isn't to let it burn a hole in someone else's instead

In for a penny, in for a pound! (or at least 75% of one )

This is only the case if your working practices put you outside IR35