Becoming Self-employed

KarmaPolice

My hubby is in the process of becoming an independent contractor (draughtsman) - he will be working for a company for a specified hourly rate and will be forming a limited company.

His intension was to use a managed service company but since the budget Mar 07 there has been changes to legislation with regards to MSC's.

His understanding is that MSC's will no longer be able to provide accounting services etc. Question is, will he have to set up the company now himself and what is the most profitable i.e. sole trader, limited company or umbrella company.

Any advice etc will be greatly appreciated.

dejongj

Keeping the most money yourself would still be through a limited company. A key aspect with a limited company versus the previous managed services companies is control, with the right accountants service it can still be as easy as it was before...Except you will have to control your bank account yourself, something I would anyway....

However!!! Especially when you are talking about that he is working for a company that could hint at hidden employment and come into the trap of IR35. For starters you need to get your 'language' right and act like you will be in business, if you are not in business ask yourself why the 'employer' wants him to be a contractor and then perhaps consider working through an umbrella company.....

adypem

dejongj wrote: »

Keeping the most money yourself would still be through a limited company. A key aspect with a limited company versus the previous managed services companies is control, with the right accountants service it can still be as easy as it was before...Except you will have to control your bank account yourself, something I would anyway....

However!!! Especially when you are talking about that he is working for a company that could hint at hidden employment and come into the trap of IR35. For starters you need to get your 'language' right and act like you will be in business, if you are not in business ask yourself why the 'employer' wants him to be a contractor and then perhaps consider working through an umbrella company.....

I totally agree with dejongj, it might be worth getting the contract reviewed to see if he falls inside/outside IR35. If the contract is outside then the best route for maximising income would be Ltd company.
However if he is inside IR35 then I would recommend an umbrella company.

WHA

If he is caught by IR35, then he'd probably be better being a sole trader if the "employer" will allow that. As a sole trader, IR35 isn't relevant, he can still claim basically the same expenses, but would avoid the far higher employee and employer NIC that he would suffer if he worked through his own limited company or an umbrella. I suspect, though, that the "employer" won't allow him to be a sole trader. Worth asking though.

KarmaPolice

Thanks to all, that has given him food for thought.

Scary move but hopefully the right one!!

Dithering_Dad

Hi, I have just done this myself and I'm trading outside IR35 with my own limited company. However, even if I were caught by IR35 I would still trade as a limited company because although you can't get the tax breaks associated with paying dividends, you can still claim the 5% running expenses (this is the bit that managed services have now lost) and you can sign up for the VAT flat rate scheme. This is where you charge 17.5% VAT for your services and pay the government 12% in the first year of trading and 13% in the second. There are also other advantages of being a limited company, the main one is that if things go badly wrong and you are sued above your indemnity insurance, you can just fold the company and so don't lose your shirt (or house).

Also, if you are properly "self-employed" (rather than being a director of a limited company) as a sole trader, there are National Insurance implications that negatively affect your state pension.

Dithering_Dad

p.s. It's all really daunting at first but once you get into it, it's pretty straightforward. I'm really pleased I took the chance and wouldn't be a permie again for the world!!