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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

redsturgeon
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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

redsturgeon
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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.

baldchap
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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

#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.

jackdaww
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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.

jackdaww
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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 ?

redsturgeon
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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

#95936

Postby MyNameIsUrl » November 15th, 2017, 2:11 pm

Redmires wrote: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 ?

Don't worry too much if you feel you need to register. If you use the VAT Flat Rate Scheme (https://www.gov.uk/vat-flat-rate-scheme) the quarterly returns are trivially simple - just a flat % of your turnover.

I don't think you've said what your business is but you'd need to check if Flat Rate is valid - it won't be appropriate for buying and selling goods for example, but by 'going contracting' I'm taking this to mean you will be working for a daily rate (or similar) and won't have significant purchases. Business types here: https://www.gov.uk/vat-flat-rate-scheme ... ch-you-pay

StepOne
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Re: Going contracting - Starting a Ltd company

#96167

Postby StepOne » November 16th, 2017, 12:05 pm

Hi,

In terms of registering a company, you don't need to use a one-stop shop, just do it directly on the companies house website. Only costs £12.

https://www.gov.uk/limited-company-form ... ur-company

Then you just need an accountant and a bank account.

StepOne

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Re: Going contracting - Starting a Ltd company

#100159

Postby melonfool » November 30th, 2017, 11:32 am

I registered my own company, I do all my own payroll (even if you don't pay yourself you need to do the HMRC RTI stuff, I just click 'non pay periods' every few months), my VAT (flat rate scheme, piece of [VAT-free] cake) and keep detailed records. I have a spreadsheet that tells me how much corp tax I'll need to pay, I deduct any business expenses, then pay myself the rest as dividends.
I send the records to the accountant at the end of the company tax year and she charges me £250 to do a short statement for Companies House plus my own Self-Assessment.

I use HSBC bank for my business account (yes, you *must* have one as your payment from clients must go to an account in the same name as the contracting party and the company that issues the invoice).

If you are a Ltd co there are also a lot of rules around what you put on your invoices and headed paper etc. For example, you must put your Co Reg number and your VAT Reg No on all invoices, and the co Reg no on all correspondence - even emails (so, design yourself a footer and use it). It should also be on your website and business cards if you use them. And, in theory, your registered offices but I've never bothered to be honest, since it's my house. I do have the 'company file' in my office, with all the reg documents and the share information. It is a different colour to all my other folders and clearly marked.

Oh, and every time you pay yourself a dividend you must do a 'company resolution'. I do this, print it, sign it, stick it in the company file and keep a soft copy on the PC.

I would say though, if you have only one 'customer' and they have given you an 18m contract why isn't that just employment? It would be very hard to justify that as a service contract. Usually I tell companies to only give 6m contracts and then 'extend' them. Also, do you plan your own holidays, control your own working days, can you work wherever you like, do you provide your own equipment including using your own/your company email address? If the answer to those is 'no' then you are at very high risk of being found to be employed and the 'contractor' status a sham if HMRC does an inspection.

For me, I have an employed job 3 days a week and three separate clients. For the clients I do most of my work from home, if I go to their site I take my own laptop, I don't use their email addresses, I do most of the work ad hoc (i.e. no set days, no set duration except with one they give me 6 day call-off contracts at a time, I may or may not use the 6 days), I tell them which days I am available (next week I am having new carpets fitted, I don't need to tell my client this, I just say "my next day I'm coming in is Friday").

Mel

Redmires
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Re: Going contracting - Starting a Ltd company

#103006

Postby Redmires » December 9th, 2017, 5:40 pm

Thanks to all for your replies and help. I've just finished my first week as a contractor and what seemed daunting at first (setting up a company etc) was actually quite a doddle. The only delay was setting up a business bank account (with Santander) but that only took a couple of weeks.

I'm well aware of the IR35 situation and will take advice on it. If found to be inside then I'll consider upping pension contributions to counteract the increased tax and NI. One question that I can't find an answer for though is: If found to be inside IR35 and "employed" by a company, then surely that company has to offer a pension etc (be it at a minimum of 1% of salary).

Either way, it will work out for me as I will still earn considerably more than my last role even if inside IR35.

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Re: Going contracting - Starting a Ltd company

#103068

Postby melonfool » December 10th, 2017, 12:50 am

I agree with Fred, employment law and tax law do not align.
In fact, there is another category, 'worker', which may or may not be an employee and may or may not be a contractor and has some rights and liabilities and not others.

I think if you do work for multiple clients, as I do (four currently, plus my three day a week employed role) then you'll still be OK, but those ten year contracting posts won't exist soon.

Mel

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Re: Going contracting - Starting a Ltd company

#104335

Postby Jopo1 » December 15th, 2017, 11:43 am

Your contract should include a clause that you can substitute someone else to carry out the work. This helps avoid IR35 issues. But of course it helps to have someone available to do this! my husband has a couple of people he can call on to subcontract to.

Also, it helps if you have more than 1 client to invoice over the course of the year, then you are clearly not just working for 1 company, but a true contractor offering services to various clients.

You should have an accountant to do your accounts. We pay approx £800 pa for the company accounts, 2 self assessments of 2 directors, and the company return with companies house. I deal with the salary and VAT which is minimal work. If you want an accountant to do this then it will cost of course. I gather up all the info needed once a year and send it off in spreadsheets and receipts in date order.

You will be legally required to keep an invoice record and VAT record (if registered), I combine onto a single, simple spreadsheet.

If you decide to go down the VAT route, you can opt for the flat rate scheme.

For insurance, we use Markel which I have found to be much cheaper than anyone else.

HTH

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