Working as a contractor and setting up a Ltd company.

Discussion in 'Finance, Property, Law' started by FatBoyGeorge, Jul 17, 2012.

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  1. Evening guys,

    I have searched and found a couple of threads on Ltd companies but they don't really answer my questions, so here I am.

    I may soon find myself working as a contractor on a regular rotation with a good daily rate of pay, a situation which is completely new to me. I have heard second hand stories from friends of friends about contractors setting up Ltd companies for the use of tax avoidance, I just want clarification on what is common practice and legal.

    Questions I have at the moment are: -

    How do I actually set up a Ltd company?
    How does paying yourself a low wage with large bonuses/dividends work?
    What range of purchases can you claim VAT back on?
    What paperwork will be involved for myself?
    I've heard about (including on here) about purchasing cars/houses etc. through the Ltd company, what are the benefits/pitfalls of this?

    That is it for now, I'm sure they'll be more.

    Thanks in advance.

  2. Rod924

    Rod924 LE Reviewer

    Firstly, what service are you offering and to whom? IR35 compliance maybe something you need to be aware of.

    Setting up a ltd company is a peice of piss. £18 and you can do it on line.

    You pay yourself (paye ) £144 per were. This avoids paying employer contribution (you are an employee of the ltd company) plus NI contributions/Tax

    You pay 20% corporation tax on net profit but can take a dividend of the net profit x 10/9th.

    you can take a proportion of your heating/lighting costs if working from home but not a proportion of the mortgage interest.

    Are you aware of the 'be the boss' scheme?
    • Like Like x 2
  3. Contact your local Tax Office, they have training days to discuss setting up as self employed and forming LTD Companies.

    The training days are free, they tell you every thing you need to know and have various paper work exercises to complete with examples etc. Given copies of all the forms, VAT explained etc.

    They explain the 'misunderstandings' and what you can and cannot do.

    They also throw in free tea, coffee and biccies. (Be early to grab the decent ones).

    Lots of question and answers and example cases discused.
    • Like Like x 1
  4. I'davoid it like the plague unless you are very confident about what you're doing. The IR35 thing put paid to a lot of the loopholes.

    I'd look at setting up with an Umbrella Company (I use Atlantic Umbrella who have been great) as they will process all your PAYE & NI and do all the tax offsets for you.
  5. Working in the Oil & Gas industry as a safety trainer. I would be paid through an intermediary, so would have to pay comparable tax and NIC's???? Is that right?
  6. Do you find you make notable savings through an umbrella company?
  7. I'm not sure that since the IR35 regs came in there are any significant savings to be made any more, but I'm not an expert. For me what is saved is my time - I send a timesheet to the Umbrella Company, they invoice the client & sort out the tax & NI with no need for me to wrestle with it all or employ an accountant to do so for me.
  8. Go and see a good chartered accountant.

    The first consultation will probably be free.
  9. Rod924

    Rod924 LE Reviewer

    IR35 is about ensuring you're not really an employee. Basically, if you are going to work on a three year project for company x, and you are not supplying/trading with no other companies, effectively you are an employee. I got my contractors to complete a Contract for Service for specific parts of the project..that protected both parties.

    Not sure if HMIT offer training days now due to cut backs.

    Umbrella companies do their job, but you are paying for that plus you will still need an accountant for your returns and self assessment
  10. Okay, cheers CP.
  11. Mr_Fingerz

    Mr_Fingerz LE Book Reviewer

    @ OP you need to do two things.

    1 Get a good accountant - not necessarily one of the Big 4, to take you through the ins and outs of the benefits and disadvantages of setting up your own company.

    2. Get the above accountant to get you a chat with a Chartered Tax Advisor (CTA). These are people who are trained to have in-depth knowledge across all of the mainstream tax regimes (for some reason Excise Duties remain a mystery to them - but I digress). One of these should be able to answer all of your questions on Income Tax, Corporation Tax, VAT, and National Insurance. They should are also able to give advice about tax planning. That is not evasion, or in most cases avoidance, it is ensuring that you only pay what you ought to pay at the time that you should pay it.
  12. Good resource, I used it when I started up. Ltd Company is a bit labour intensive in terms of book keeping but the tax benefits are much better than anything from an umbrella company. I'm not sure about umbrella but Ltd you have to have good insurance PLI essential. You can write of a whole lot of expenses against tax, the big one being fuel if you are using this for business purposes, see a chartered accountant for details. The added bonus is you are now classed as a Company Director, but this in itself is a 2 edged sword because of the responsibilities incurred.
    Good luck with the business venture.
  13. Seconded. I'm with an accountancy firm called, who were recommended to me 8 or 9 yrs ago. Wouldn't want to have the arrse ache of doing all the bookkeeping and tax myself. They,re a tax deductible business cost and I really wouldn't want to be without the services and advice they provide.

    When I started, it was with them as my Umbrella Company. When the tax rules changed, and it became better for the likes of me to become Ltd Companies, they helped me with all the faff of setting me up. Never met any of them - all done online.
  14. Thanks for all your replies guys, a lot of good opinions and info to go on.