Contractors, freelancers and consultants
As a contractor, consultant or freelancer, you will be in control of your income and be responsible for paying your own taxes to HMRC. There are also three main things to consider:
1. Business Structure
The most common methods of getting paid as a contractor is either through an Umbrella Company or a Limited Company, and both have advantages and disadvantages of doing so.
- Limited Company is the most tax efficient format and IR35 needs to be carefully considered
- Umbrella Company tends not to be very tax efficient but can be less hassle than a limited company but is more convenient if you only have a short term contract
IR35 is a piece of tax legislation that has been designed to prevent tax avoidance by workers supplying their services to clients via an intermediary, such as a limited company, but who would have been an employee if the intermediary was not used. These workers are called ‘disguised employees’.
If caught by IR35 there can be quite considerable tax implications such as having to pay tax and National Insurance Contributions as though they were an employee
There can be some benefit in being VAT registered as a contractor especially by using the Flat Rate VAT scheme and if your client is VAT registered they can reclaim the VAT that you charge.
The benefit of using the Flat Rate Scheme is that you pay to HMRC VAT based on a percentage of your gross turnover which is smaller than the rate you have charged to your customer – and you keep the difference.
If you are new to contract work, Brash & Co can assist you with:
If you are an existing contractor using a limited company, Brash & Co can assist you with:
- VAT calculations and submission of VAT returns
- Monthly payroll
- Dividend vouchers
- Filing your annual return
- Preparation of annual accounts
- Calculation of your tax liability
- Completion and filing of corporation tax return