Helping you work out how to get started with contracting.
More and more people are finding themselves having to turn to contracting either through redundancy or organisation restructuring. It can be a daunting time as there are so many differences to being a ‘normal employee’ and now having to deal with your own accounts and tax affairs.
Chances are, via the agency, that the first thing you need to decide is how will you be paid.
1 – Via an agency as PAYE
If you opt for this method of payment then you will be being employed via an agency like a ‘temp’. You will be treated very similarly to an employee being paid a salary, via the agency, with tax and NI deducted by them. You will have entitlement to full statutory rights and benefits. This method can work well for very short term projects of a few weeks or where you will work in the public sector and be caught by their IR35 assessments.
Take-home pay will usually be around 60% of the contract value
2 – Via an umbrella company as PAYE
This method is very similar to the normal agency option with tax and NI being deducted at source. Additionally, you will also pay Employers NI and likely have a deduction made to cover holiday pay too. With this method, you can also claim a limited number of expenses which can reduce the tax and NI you pay. Most can no longer claim for travel and subsistence meaning this is now a less popular route. You will pay the umbrella company a fee for their services usually around £25 per week. This method can work well for very short term projects of a few months.
Take-home pay will usually be around 65% of the contract value
3 – Contract via your own limited company
This method is the most popular method. You engage either directly with the end client or via an agency submitting invoices for your work. You become responsible for dealing with all of your own tax with nothing being deducted at source. There are many legitimate expenses to be claimed which can reduce the tax and NI you pay. You may need an accountant to handle everything for you to ensure you are compliant and structuring things in the most tax-efficient way. The needs you have are fairly basic but the accountant you appoint should ideally have some experience of dealing with contractors so you get quality advice. There are some specialist contractor only accountants around too. Expect costs to be around £80 per month for such a service.
This method works best for contracts longer than a few months.
Take-home pay will usually be around 70-75% of the contract value
Made your mind up and know you want to be a contractor working via your own limited company? Book a call with us here – www.mbsaccountants.as.me/discovery