Be a limited company for contracting?

masamoah

Hi

I am in the process of working saving for a mortgage. I am looking for a better paid job.
I have been offered a contract which pays £29k. (i am currently on £25k).

But, to get the £29k i would have to set myself up as a limited company.

Is it really worth going through all the hassle of getting an accountant just to get an extra £4k a year?

I am a sole trader at the moment and a worry of mine is that i would change to a limited company, and what if i do not like the
role? Then i have to change back to a sole trader..

What are people's thoughts?


Regards

HappyMJ

masamoah wrote: »

Hi

I am in the process of working saving for a mortgage. I am looking for a better paid job.
I have been offered a contract which pays £29k. (i am currently on £25k).

But, to get the £29k i would have to set myself up as a limited company.

Is it really worth going through all the hassle of getting an accountant just to get an extra £4k a year?

I am a sole trader at the moment and a worry of mine is that i would change to a limited company, and what if i do not like the
role? Then i have to change back to a sole trader..

What are people's thoughts?


Regards

Yes it's worth it.

Why would you not want the extra £4k/year? It's a lot more than £4k as you pay yourself an annual salary of £8,060 per year (which is free of tax and NI) and the remainder is paid out as a dividend which gives you much more in your pocket. The company is taxed at 20% which is less than paying Income tax and NI contributions. You are still credited with NI despite not paying for them.

I own a Ltd. company myself. I do not have and do not need an accountant. You can do your own books and when you need a mortgage you can pay an accountant £100 or so to verify them and sign them off. Until then you don't need their services.

BananaRepublic

Are you sure you will get £29K? Amd what is the job security?

As a limited company you may have to pay tax under IR35, which means that all the income from your company after corporation tax is paid as salary plus employers and employees NI. So your actual salary might be considerably less than you think. Also, if the contract is not long term, you end up with periods of no income. You will have to pay your accountant, more than £1000 a year is typical. Under IR 35 you can go via an umbrella company. Or you do accounts yourself, but tax scares some including myself.

It does sound as if you are already working on contracts.

masamoah

BananaRepublic wrote: »

Are you sure you will get £29K? Amd what is the job security?

As a limited company you may have to pay tax under IR35, which means that all the income from your company after corporation tax is paid as salary plus employers and employees NI. So your actual salary might be considerably less than you think. Also, if the contract is not long term, you end up with periods of no income. You will have to pay your accountant, more than £1000 a year is typical. Under IR 35 you can go via an umbrella company. Or you do accounts yourself, but tax scares some including myself.

It does sound as if you are already working on contracts.

It is only a 6 month contract! And I know with contracts, they can get rid of you pretty easily. I would probably want to pay an accountant as I need someone to do my self assessment etc. (I reckon this would cost me £100 a month). The daily rate before tax is £122. So that equated to £29k a year.

What are your thoughts now?

masamoah

BananaRepublic wrote: »

Are you sure you will get £29K? Amd what is the job security?

As a limited company you may have to pay tax under IR35, which means that all the income from your company after corporation tax is paid as salary plus employers and employees NI. So your actual salary might be considerably less than you think. Also, if the contract is not long term, you end up with periods of no income. You will have to pay your accountant, more than £1000 a year is typical. Under IR 35 you can go via an umbrella company. Or you do accounts yourself, but tax scares some including myself.

It does sound as if you are already working on contracts.

HappyMJ wrote: »

Yes it's worth it.

Why would you not want the extra £4k/year? It's a lot more than £4k as you pay yourself an annual salary of £8,060 per year (which is free of tax and NI) and the remainder is paid out as a dividend which gives you much more in your pocket. The company is taxed at 20% which is less than paying Income tax and NI contributions. You are still credited with NI despite not paying for them.

I own a Ltd. company myself. I do not have and do not need an accountant. You can do your own books and when you need a mortgage you can pay an accountant £100 or so to verify them and sign them off. Until then you don't need their services.

Ok. As I am saving for a house, I need to put about £600 into different ISA’s and different saving accounts…would I be able to do this every month from the dividends? So to make myself clear, would I be able to live of the £8060 and then use the left over money to put into savings and investments? Is that allowed?

Hmmm, I think I would need an accountant as I already have one and its is probably more time efficient to pay a little extra.

BananaRepublic

masamoah wrote: »

It is only a 6 month contract! And I know with contracts, they can get rid of you pretty easily. I would probably want to pay an accountant as I need someone to do my self assessment etc. (I reckon this would cost me £100 a month). The daily rate before tax is £122. So that equated to £29k a year.

What are your thoughts now?

You don't need to pay an accountant to do your self assessment, although it cost me £100 once. Basically pretty all you need for self assessment is your salary, dividends and other investments. The accountant should tell you what salary you get and the tax you pay. You will pay your accountant to do your accounts and tax i.e. to tell you what salary to take each month, what PAYE tax to pay each month, what dividends to take and when, and she will also do your company accounts for filing with companies house. Generally accountants charge on a yearly basis, my last contract was 6 months, oops.

There is a contractor UK forum which might be more helpful for you.

HappyMJ

masamoah wrote: »

Ok. As I am saving for a house, I need to put about £600 into different ISA’s and different saving accounts…would I be able to do this every month from the dividends? So to make myself clear, would I be able to live of the £8060 and then use the left over money to put into savings and investments? Is that allowed?

Hmmm, I think I would need an accountant as I already have one and its is probably more time efficient to pay a little extra.

You won't be living off just the £8,060.

You could pay an accountant but at £100/month as quoted earlier for what for me would be for one single monthly invoice or 4 or 5 weekly invoices and a couple of expenses...it just isn't worth it. It is very easy to create your own books and get them signed off by an accountant just once per year at a cost of around £100 if you've prepared your books well enough. Software will help you do that and you can even submit your books via email to your accountant from the software.

Self assessment is very easy. You just log on to the gov.uk web site enter a few figures from your books and click submit.

It takes me about 30 minutes to an hour a month entering the figures from the invoices I've submitted, the expenses I've incurred and then paying myself. It depends on how much you value that time. You're still going to do much of that work when you submit your paperwork to the accountant so you wouldn't be saving much time.

Thrugelmir

masamoah wrote: »

It is only a 6 month contract! And I know with contracts, they can get rid of you pretty easily. I would probably want to pay an accountant as I need someone to do my self assessment etc. (I reckon this would cost me £100 a month). The daily rate before tax is £122. So that equated to £29k a year.

What are your thoughts now?

No holiday pay, no sick pay. No redundancy pay. No employer pension contribution.

Straight salary comparisons aren't the only things to consider.

antrobus

masamoah wrote: »

......What are people's thoughts?
...

As a contractor you will find that many (if not most) potential clients won't hire you unless you have a limited company.

Thrugelmir wrote: »

No holiday pay, no sick pay. No redundancy pay. No employer pension contribution. .

The OP is currently a "sole trader", so they are already in the position of receiving no holiday pay, no sick pay, etc.

atush

So if there is no prospect of employers contribs and sick pay/holiday pay-

after you buy the house, stay a LC and set up a pension where the company (not you) pays the contributions?

Pincher

For some industries, contracting is the norm.
Twenty years ago, half my colleagues were contractors.
They write a piece of software, it's tested, and they leave.
For the right person, it keeps things interesting.

They were billing £70k to £90k, and I was on ~£35k, but of course I had final salary pension, private health insurance and paid holidays, and training courses.

Tragi-comically, when I had time to go on a training course, it usually meant there was not enough work, and redundancy is near. Oh yes, I got £30k redundancy money tax free, which contractors don't get.

Got some share options, too.