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Going contracting - Starting a Ltd company

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Redmires
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Going contracting - Starting a Ltd company

#95452

Postby Redmires » November 13th, 2017, 8:46 pm

I guess there's a few of you on here who are contracting. So ....

I've been offered a contracting role and I need to set myself up as a Ltd company. After 40 years of PAYE this is all new to me so I'm after a few words of advice from those who have been through the process. Questions that sping to mind are

How easy is it to set up yourself ? Is it better to use a "one stop shop" and if so, any recommendations.

Accounts - use a chartered accountant or go via a all-inclusive company. Brookson's have been recommended but I wouldn't know if a one man outfit would require that level of support.

Business bank account - is it better to have one and are some banks better than others ?

VAT - I wouldn't hit the threshold but the company I would be contracting for are asking for a VAT certificate. Would I need to register ?

IR35 - Aaaarrrgghhh !!!!!

I have a thousand and one questions that I can't think off at the moment but if someone could recommend a good "starting off" website I would be very appreciative.

TIA

redsturgeon
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Re: Going contracting - Starting a Ltd company

#95471

Postby redsturgeon » November 13th, 2017, 10:07 pm

Redmires wrote:I guess there's a few of you on here who are contracting. So ....

I've been offered a contracting role and I need to set myself up as a Ltd company. After 40 years of PAYE this is all new to me so I'm after a few words of advice from those who have been through the process. Questions that sping to mind are

How easy is it to set up yourself ? Is it better to use a "one stop shop" and if so, any recommendations.

Accounts - use a chartered accountant or go via a all-inclusive company. Brookson's have been recommended but I wouldn't know if a one man outfit would require that level of support.

Business bank account - is it better to have one and are some banks better than others ?

VAT - I wouldn't hit the threshold but the company I would be contracting for are asking for a VAT certificate. Would I need to register ?

IR35 - Aaaarrrgghhh !!!!!

I have a thousand and one questions that I can't think off at the moment but if someone could recommend a good "starting off" website I would be very appreciative.

TIA



Just to get you started, if you set up a ltd company then you must have a business bank account, you and the ltd company are not the same entity, the money in the ltd company is not yours, you must pay yourself either via a salary or dividend or probably a combination of both.

Must dash now but I'm sure all you questions an be answered here.

John

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Re: Going contracting - Starting a Ltd company

#95489

Postby FredBloggs » November 14th, 2017, 12:01 am

@ Redmires, based on my own experience of around 15 years Ltd Co contracting here's what I recommend.

Firstly yes, you should have an accountant. But - I seriously recommend you to avoid Brookson, probably the worst possible choice and very expensive. In fact, I recommend you avoid all the big "contractor" specialists. Without exception IMO, they are all expensive to extremely expensive and all are between poor and appalling. Ones to avoid are Danbro, Nixon Williams, Clearsky, SJD, Churchill Knight and several others including Brookson. Look for a smaller contractor focused accountant. There are many out there. My top tip is to engage an accounting firm who support FreeAgent software. The FreeAgent software is usually included in the monthly fee. It isn't exaggerating to say that FreeAgent is changing the way contractors and accountants operate. With "making tax digital" on the horizon you are going to have to use accounting/compliance software any way soon, so you may as well start off that way. I suggest you look at a website and forum called Contractor UK and download their starter guides. Also, IPSE have starter guides too. Be aware that the Contractor UK forum can be a bit of a bear pit to new contractors, but there is a mine of information in the forum. If you choose a FreeAgent accountant from there they will set up the Ltd Co, the VAT registration and PAYE with HMRC for you, normally free of charge. You need a business bank account and I recommend Santander. I think you get a couple of years free banking as a new customer. Thereafter, GBP 6.00 a month. You will likely need professional indemnity and public liability insurances. For those look for a firm called QDOS, they offer contractor insurance products at a very good price. Hope that helps.

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Re: Going contracting - Starting a Ltd company

#95515

Postby redsturgeon » November 14th, 2017, 7:58 am

All good advice from FredBloggs, I'd also look at HSBC for business banking, and Hiscox for PI and PL insurance.

John

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Re: Going contracting - Starting a Ltd company

#95518

Postby FredBloggs » November 14th, 2017, 8:09 am

redsturgeon wrote:All good advice from FredBloggs, I'd also look at HSBC for business banking, and Hiscox for PI and PL insurance.

John

Hiscox will be at least 2 or 3x QDOS unless you are in a niche like aerospace or nuclear power, in which case it'll cost a fortune any where, if anywhere will cover you at all.

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Re: Going contracting - Starting a Ltd company

#95521

Postby redsturgeon » November 14th, 2017, 8:23 am

FredBloggs wrote:
redsturgeon wrote:All good advice from FredBloggs, I'd also look at HSBC for business banking, and Hiscox for PI and PL insurance.

John

Hiscox will be at least 2 or 3x QDOS unless you are in a niche like aerospace or nuclear power, in which case it'll cost a fortune any where, if anywhere will cover you at all.


That's good to know. I'm not nuclear or aerospace but when I was looking a few years ago they were about the only company who would give us what we needed. I will look at QDOS though.\\

I remember now...we were needing to take blood samples and nobody would insure us for that except Hiscox.

John
Last edited by redsturgeon on November 14th, 2017, 8:28 am, edited 1 time in total.

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Re: Going contracting - Starting a Ltd company

#95522

Postby baldchap » November 14th, 2017, 8:26 am

Have been limited for nearly 6 years now, and would echo the point about getting a good local accountant.
Personally I would also avoid HSBC, as per this thread;
https://www.lemonfool.co.uk/viewtopic.php?f=45&t=7995&p=89881#p89881

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Re: Going contracting - Starting a Ltd company

#95525

Postby FredBloggs » November 14th, 2017, 8:36 am

redsturgeon wrote:
FredBloggs wrote:
redsturgeon wrote:All good advice from FredBloggs, I'd also look at HSBC for business banking, and Hiscox for PI and PL insurance.

John

Hiscox will be at least 2 or 3x QDOS unless you are in a niche like aerospace or nuclear power, in which case it'll cost a fortune any where, if anywhere will cover you at all.


That's good to know. I'm not nuclear or aerospace but when I was looking a few years ago they were about the only company who would give us what we needed. I will look at QDOS though.\\

I remember now...we were needing to take blood samples and nobody would insure us for that except Hiscox.

John

Ah, OK. I'm guessing that if you aren't a vanilla IT or engineering contractor then QDOS may not be for you. I tend to default to that way of thinking since everybody I know is in engineering or IT who is a contractor. Having said that, nothing lost by speaking to them.

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Re: Going contracting - Starting a Ltd company

#95527

Postby FredBloggs » November 14th, 2017, 8:39 am

baldchap wrote:Have been limited for nearly 6 years now, and would echo the point about getting a good local accountant.
Personally I would also avoid HSBC, as per this thread;
https://www.lemonfool.co.uk/viewtopic.php?f=45&t=7995&p=89881#p89881

With all due respect, I'm not actually advocating a local accountant unless someone fully conversant with the contractor business model is local. Much more important, IMO, is the feedback from current contractor customers. In 15 years I have never met an accountant and I guess I never will. Particularly with FreeAgent, meeting the accountant is rarely if ever required. Nothing wrong with a local guy, just be sure he knows his stuff.

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Re: Going contracting - Starting a Ltd company

#95543

Postby UncleEbenezer » November 14th, 2017, 10:10 am

Redmires wrote:I guess there's a few of you on here who are contracting. So ....

I've been offered a contracting role and I need to set myself up as a Ltd company. After 40 years of PAYE this is all new to me so I'm after a few words of advice from those who have been through the process. Questions that sping to mind are

How easy is it to set up yourself ? Is it better to use a "one stop shop" and if so, any recommendations.

Yes, use a company formations agent. "Jordans" springs to mind; think that's who we used.

Accounts - use a chartered accountant or go via a all-inclusive company. Brookson's have been recommended but I wouldn't know if a one man outfit would require that level of support.

Can you do your own bookkeeping, or hire an hour-a-month freelance bookkeeper? That'll keep the accounting cost down. But yes, do find a local chartered accountant.

Business bank account - is it better to have one and are some banks better than others ?

You'll need one. Sorry, no recommendations. We use Barclays, though only inertia keeps us there.

VAT - I wouldn't hit the threshold but the company I would be contracting for are asking for a VAT certificate. Would I need to register ?

Pros: you get to reclaim VAT on business purchases (e.g. computer). Cons: a whole lot more red tape & bookkeeping. On balance, probably avoid. Your client should presumably accept "I'm below the threshold" as an answer to the VAT question.

IR35 - Aaaarrrgghhh !!!!!

No comment. Never affected me.

I have a thousand and one questions that I can't think off at the moment but if someone could recommend a good "starting off" website I would be very appreciative.

TIA

Redmires
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Re: Going contracting - Starting a Ltd company

#95566

Postby Redmires » November 14th, 2017, 11:29 am

Thanks all for the many replies. I'll be just a normal IT contractor - nothing fancy. I've secured an 18 month contract which should provide a bit of security. After 18 months I can see whether contracting/self employment is for me or not.

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Re: Going contracting - Starting a Ltd company

#95683

Postby jackdaww » November 14th, 2017, 5:48 pm

i retired in 2001 so not up to date .

i managed to stay self employed over 20 years contracting.

i never had an accountant - just keep records of income and expenditure .

and no business bank account either .

one possible way of being recognised as self employed is to run another - genuine - different business as well .

good luck .

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Re: Going contracting - Starting a Ltd company

#95843

Postby redsturgeon » November 15th, 2017, 9:46 am

jackdaww wrote:i retired in 2001 so not up to date .

i managed to stay self employed over 20 years contracting.

i never had an accountant - just keep records of income and expenditure .

and no business bank account either .

one possible way of being recognised as self employed is to run another - genuine - different business as well .

good luck .


If you run a ltd company then you MUST have a business account. The money in the company is not your money and must be kept separate. I guess you were a sole trader.

John

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Re: Going contracting - Starting a Ltd company

#95852

Postby didds » November 15th, 2017, 10:09 am

redsturgeon wrote:[
If you run a ltd company then you MUST have a business account. The money in the company is not your money and must be kept separate. I guess you were a sole trader.

John



... and managed to stay away from the Revenue who were certainly hot on sole trader contracting scenarios in the early 90s. Before Brown made it all even more complicated.

That said I knew of contractors at one client who operated as sole traders for years at the same place. goodness only knows how they and the client never got investigated, as I understood the positions to be at that time (hence why we all "had" to become ltd companies)

didds

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Re: Going contracting - Starting a Ltd company

#95853

Postby MyNameIsUrl » November 15th, 2017, 10:09 am

Redmires wrote:... After 40 years of PAYE this is all new to me


You should by now have enough National Insurance contributions for a full state pension. I was in a similar position, so when I was contracting I took no salary at all, thus avoiding the need to run a payroll. This cuts admin and accountant's fees with no disadvantage to you. The only cash I took from the company was in the form of dividends.

The other thing I was able to do was extract only a level of dividends which kept under the higher tax rate. This may not be enough for you you to live on so may not work for you. I contracted for about 4 years, so the cash built up over time in the company bank account. When I stopped working and closed the company I was able to extract all this accumulated cash and pay only 10% income tax (via an 'Entrepreneurs' allowance). Something I suggest you check to see if it would be available to you.

My comments really only apply if you already have a full state pension, are not too many years from finishing work, and don't need to extract cash as soon as you can from the company.

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Re: Going contracting - Starting a Ltd company

#95860

Postby FredBloggs » November 15th, 2017, 10:21 am

MyNameIsUrl wrote:
Redmires wrote:... After 40 years of PAYE this is all new to me


You should by now have enough National Insurance contributions for a full state pension. I was in a similar position, so when I was contracting I took no salary at all, thus avoiding the need to run a payroll. This cuts admin and accountant's fees with no disadvantage to you. The only cash I took from the company was in the form of dividends.

The other thing I was able to do was extract only a level of dividends which kept under the higher tax rate. This may not be enough for you you to live on so may not work for you. I contracted for about 4 years, so the cash built up over time in the company bank account. When I stopped working and closed the company I was able to extract all this accumulated cash and pay only 10% income tax (via an 'Entrepreneurs' allowance). Something I suggest you check to see if it would be available to you.

My comments really only apply if you already have a full state pension, are not too many years from finishing work, and don't need to extract cash as soon as you can from the company.

(My red bold in the above text). Not necessarily. You need to go to the government gateway website and get a pension forecast. Easy enough to do, takes a few minutes once you are on the website. If your 40 year career was spent in a company pension fund that was contracted out you may well need to contribute more NICs to get your maximum entitlement. It is simple enough to do. It happens I need to pay five more years NICs to qualify for the maximum available state pension.

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Re: Going contracting - Starting a Ltd company

#95872

Postby jackdaww » November 15th, 2017, 11:00 am

redsturgeon wrote:
jackdaww wrote:i retired in 2001 so not up to date .

i managed to stay self employed over 20 years contracting.

i never had an accountant - just keep records of income and expenditure .

and no business bank account either .

one possible way of being recognised as self employed is to run another - genuine - different business as well .

good luck .


If you run a ltd company then you MUST have a business account. The money in the company is not your money and must be kept separate. I guess you were a sole trader.

John


==========================

yes , i was not a company director .

i dont know the official HMRC classifications , i have assumed sole trader/self employed were one and the same .

is a company director classified as self employed ?

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Re: Going contracting - Starting a Ltd company

#95875

Postby redsturgeon » November 15th, 2017, 11:16 am

jackdaww wrote:
yes , i was not a company director .

i dont know the official HMRC classifications , i have assumed sole trader/self employed were one and the same .

is a company director classified as self employed ?


Its not straightforward. Here is the government's take on it. You can be both an employee and self employed.

https://www.gov.uk/employment-status/se ... contractor

I am a director of my own company but I pay myself a salary, therefore I am employed, but I also take dividends from my company and run and direct it so in that sense I am self employed. You must remember that my ltd company is a different legal entity to me as a person. I am employed by the company that I happen to own.

John

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Re: Going contracting - Starting a Ltd company

#95885

Postby johnhemming » November 15th, 2017, 11:47 am

I started freelancing in 1983 as self-employed (Schedule D) which I turned into a Schedule D partnership in 1985. We created a plc as a subsidiary for some years then moved to an LLP the company is now JHC Systems Ltd (previously John Hemming & Co.).

I think the big issue about freelancing is to make sure the relationship with the contracting organisation is clearly not one of employment. That is probably why they want you to set up a Ltd Co and ideally register for VAT. Interestingly people who are looking to distinguish between those people who are businesses and those who are not often look for the VAT registration number to make this clear. I cannot remember when I started using an accountant, but I have done for a long time although I did not at the start.

Realistically my contracting changed into being a software house within about a year of starting contracting (mainly because I took on other people). I was also not contracting for long periods, but instead for shortish tasks (days or weeks)

If I were you I probably would aim to register for VAT simply to fall fairly and squarely into that commercial territory. The main thing to do is to keep the cash on the side to pay the VAT every quarter. Normally contractors shouldn't have a problem getting paid really, but managing non PAYE cashflow is a bit more complex.

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Re: Going contracting - Starting a Ltd company

#95895

Postby FredBloggs » November 15th, 2017, 12:08 pm

As a nano business, I consider from a cash flow perspective, it is essential you tell the VAT people that you elect for "cash accounting". If the accountant sets your VAT registration up, it is vital you tell him this. This means you will pay VAT on what you been actually paid for already. If you don't elect for cash accounting, you will pay VAT on money invoiced but have not yet received. HTH.


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