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Frequently Asked Questions |
Your Questions AnsweredWe speak to many new Contractors
each week While their circumstances are varied and their contract work
spans many disciplines, there are some questions which we are asked
regularly. We have listed some of the most common for your information.
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Q Do I have to establish a Limited Company to become a contractor?A. No, but most agencies will only deal with contractors who work for a Limited Company. The favoured option for contractors therefore is to establish their own Company. However, we also offer umbrella company services for those who have only short term contracts or do not want to establish a Company or for whom it is not financially viable to run their own company.Under the Umbrella Package
facility, you simply become an employee of Birchlands Consultants Limited.
We then organise a contract of employment between you and Birchlands
Consultants Limited and you provide your timesheet to us. We then invoice
your agency and when we receive payment, we pay you through PAYE, after
a deduction for our fees and employer's National Insurance. Thus we
act as your Limited Company.
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Q Which option is best for me?A. This depends on individual circumstances. If you establish your own Limited Company, you are able to arrange your affairs more tax efficiently and can generally claim back expenses against tax not available under the umbrella route (such as mileage allowance and traveling expenses). This can mean that your net income is higher than you would receive by using the Umbrella Package and is generally the best option by far for the long term contractor, where the allowances and reduction in tax provided by expenses claims far outweigh the cost of running the CompanyHowever, if you have a short
term contract and do not intend to continue with contracting in the longer
term, or if the contract rate is below a certain threshold and you do
not travel very far in the course of your contracting work, the Umbrella
Package is likely to be better for you, as there are no costs initially,
no winding up costs at the end of your contract and no sets of accounts
to produce, all of which will be necessary with your own Limited Company,
even if you trade for a short period of time. The Umbrella Package is
simple and convenient.
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Q Isn't it complex and expensive to operate a Limited Company?A. This is certainly the case if you have little or no
experience with operating Limited Companies and if you try to organise
ht administration of the Company yourself. However,with the right help
and advice, operating a Company can be simple and need not be expensive.
Click on out Accountancy services to see details available exclusively
to Limited Company Contractors. For a monthly charge and just a few minutes
of your time each month, we will undertake the financial management of
your company for you. Help and advice is also available whenever you need
it.
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Q Should I register for VAT? I've heard that VAT accounting is difficult and time consumingA. This will depend on your
projected turnover. In most cases, the Limited Company contractor is obliged
to register for VAT . However, administering the system is very straightforward
using our standard monthly package which includes preparation of your
VAT returns. You simply provide us with details of the Company expenditure
and your time sheets. We will then raise VAT invoices on behalf of your
company, provide them to your agency and use the information on our files
to complete your VAT returns quarterly for you. All you need to do is
to sign the VAT form and return it to the VAT office.
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Q I have heard that dividends are better than salary from the company. Is this right?A. In many cases it is tax
efficient to take dividends. This is because salary is liable to national
insurance and dividends are not. As well as this, married couples often
split dividends and take some each, enabling each partner to use their
tax allowances and reducing the overall tax position. However, it is important
to consider individual circumstances including this and other issues,
which we will discuss with you as part of the Limited Company Formation
Package. Another factor is whether your contracting activities fall within
IR35 rules, details of which are provided below.
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Q I understand that there are new tax rules applying to contractors from April 2000 under the Inland Revenue IR35 rules. How will this effect me?A. . The Inland Revenue are introduced new rules from April 2000 which will apply to some contractors and consultants, but not to all. Whether they apply in a particular case is determined in simplistic terms by whether the contractor or consultant "looks like" an employee, using the Inland Revenue's tests of employment. If they do, then IR35 applies and if they don't then IR35 does not apply. It is possible for a consultant to have some contracts which fall within the new rules and some that do not.In many cases, there will
be a higher level of tax and national insurance applied to contractor
Limited Companies which fall under the new rules but with suitable tax
planning and care taken when establishing your Company, it is still possible
to enjoy a higher net income as a Limited Company Consultant/Contractor
than it is as an employee. It is also important to remember that hourly
rates for contractors and consultants are generally considerably higher
than for normal employees, so even with similar tax levied, the contractor
will earn more net income.
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Tel: 07000 785045
For Your Nearest Office or 
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| Registered Office:336 Holdenhurst Road, Bournemouth, Dorset BH8 8BE |
