Is there work out there for contractors?
Becoming your own boss is an extremely rewarding life choice and not as scary as you may think; there’s also the fact that there has never been such a good time to become a contractor.
Recent research has shown that more and more UK businesses are choosing to take on contractors, rather than committing to employing permanent staff. Research from the Institute of Leadership & Management (ILM) found that 94% of UK businesses use flexible workers.
The ‘Flexible Working: Goodbye nine to five’ report, which surveyed 1,000 managers, found that 65% said contractors increased commitment to the organisation and 78% said that it helped to retain staff.
What are the financial benefits of working as a contractor?
One of the many advantages to working as a contractor is the fact that you can often gain more financially:
- Rates can easily be double that of a full time employee, sometimes more. Also, due to the level of skills, experience and flexible nature of many contractors, this will result in even higher rates. For example a class 1 HGV contractor can expect, on average, to earn as much as £100 a day.
- As a contractor, you may be paid for every hour that you work, as well as having the opportunity to work over time if you so wish.
- Unlike permanent workers, you are able to claim back on expenses that are made wholly and exclusively for the purposes of your business, and, as you only get taxed for your profits, this can lower your tax bill.
Limited or Umbrella?
When it comes to deciding how to trade, there are two recommended options – either through your own Limited company, or through an umbrella company.
By contracting through your own Limited company, it will be the most tax efficient way of working. You can expect to take home around 75% – 80% from trading through your Limited company, whereas you could see yourself taking home around 60% – 65% with an umbrella company.
However, it’s very important to highlight the fact that trading through your own Limited company is not always ideal for every one. For example, if you’re expecting to contract for less than three months or earn less than £25,000 then it may be worth considering the umbrella company route.
How do I form my own Limited company?
To set up your own Limited company there are a few easy steps you will need to take:
- Firstly, you will need to form your Limited company. This will take you no more than 5 minutes to process. You need to have your company name decided, which you will have to check to make sure it hasn’t already been used. You will also need to have a credit card at hand to complete the transaction; from SJD this will cost you £125 plus VAT. It will take approximately three hours for your company to be formed.
- After this you will receive all the necessary Limited Company documentation, along with an application for free business banking, VAT and PAYE registration details.
- You will need to provide the following information: Director details, secretary details and subscriber / shareholder details.
Setting up a Limited company bank account
As you are seen as a completely separate entity to you business, all your finances must be handled through a different bank account to your own.
Many people may wish to set up their Limited company bank account with their current bank. Although this may seem like the easier option, it’s important that you consider other banks, because you need to look for one that will give you the best deal for business banking.
To set up your business bank account you will need to undergo checks from the bank, and so you will need all of the documents you received when your company was registered with you, such as your certificate of incorporation; as well as your passport. The amount of time it takes to set up your account will depend on a number of factors. It can take anything between one to four weeks to open an account, although this could take longer.
When it comes to your Limited company bank, you will need to consider:
- What other people say – taking on board other business owner’s testimonials and referrals is a great way of finding out which is the best bank for businesses.
- Be savvy about charges and fees – there are many banks that may be able to offer you great introductory deals, however, these rates can soon increase once they expire.
- Interest – there are some business bank accounts that will pay interest on balances, and so this is something to look into.
- Online banking – it’s a great way of taking the hassle out of writing and posting cheques, as well as being able to access real time statements for when reconciling items for your quarterly VAT return. Look out for any hidden fees with this type of service.