Thinking of Going Limited?

You may have been contracting for some time, or just starting out on your first assignment and you’re thinking about the best way to work. Do you get paid PAYE by your Employment Agency, or maybe PAYE through an umbrella employment intermediary? However, you may wish to consider another option; utilising your own Limited company, known as a PSC, as it may give you the best and most tax efficient way of working. Setting up and running your own PSC may sound daunting and the Government continues to legislate to curb the use of PSC’s where the aim is to disguise employment. However, if you choose wisely and take specialist advice, there can be genuine benefit in operating through your own limited company.

It will allow you the most tax efficient way of working, enabling you to take dividends as a director and taking more control over your finances.

Here are a few things to consider when doing so, in order that you don’t lose out, and to ensure that you don’t g fall foul of unexpected HMRC tax bills.

• How long are you intending to contract for?

If you are only just starting and not sure you’ll be contracting for long, setting up as a limited company may not be worthwhile.

As a rule of thumb, if you are likely to be on assignment(s) as a contractor for at least 12 months, then setting up a limited company may be a good option.

• Do you know what legislation effects you as a PSC?

There are a few pieces of legislation that may impact you as a PSC, but the main one is IR35, which has been effective from April 2000  This legislation has been introduced to ensure that only individuals who are genuinely operating on a self employed basis, can get the benefits. The legislation principally considers 3 tests; Substitution, Control and Mutuality of Obligation. In April 2017, the government introduced reforms to IR35 which were applied only to the public sector. The reforms extend the liability to agencies and public sector end hirers and for this reason it is more difficult to utilise a PSC if contracting in the public sector. It is possible that these reforms may also be applied to the private sector in the future. This legislation forms the framework to guide PSC’s and the clients they provide services to, preventing false self employment. As this is complex legislation it is very important to discuss your status with a qualified ACCA and IR35 specialist accountant

• Are you genuinely self employed?

IR35 is the legislation that will be used as a guide to determine this. It will be applied to each separate assignment you work on (whether that’s for 1 day, or 6 months).

There are specialist accountants that can provide detailed assessments on your working practices on each assignment to establish whether you are caught by IR35 and would need to pay PAYE tax and NIC on your earnings.

All assessments should be assignment specific, as each one is different and your relationship and working practices with each end client may differ.

There is also a government online tool to assess whether you are caught by IR35 and can be completed for each assignment.

• Do you need an accountant?

You may be a whizz with paperwork, but it is sensible to have an accountant to support you in submitting all your returns in an accurate and timely manner. The paperwork involved can seem burdensome, but a specialist accountant will take the strain for you and also provide specific tax advice designed for you as a contractor.

Choosing a specialist like IPSE, or ACCA qualified accountant over a high street accountant has its advantages as they will have a detailed understanding of the complex tax laws and legislation that affect you as a contractor. Furthermore, they are likely to have specific software that will make your day to day operation of the company much easier too.

• Have you considered insurances for your business?

Most, if not all employment agencies will require you to provide evidence that your business has the required insurances in place, as you will unlikely be insured by the agency. These may include Professional Indemnity, Public Liability and Employers Liability. Some specific sectors may require you to have additional insurances like Drivers Negligence if you are a professional driver.

NumberMill is an ACCA accountancy firm with a vast amount of experience at providing self employed contractors tailored solutions. We are IPSE qualified and members of the FCSA. We provide specific, cost effective services to contractors looking to maximise their earnings in the most compliant manner.

If you are thinking of ‘going limited’ for the first time, or a seasoned contractor looking for a more suitable accountancy offering, then call now on 0333 121 2001 for a free, no obligation consultation.

Guest blog by

Ben Wardleworth