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Working as a contractor is something that many people dream of. Contracting establishes a person as an independent business owner who enjoys the flexibility of making his/her own schedule, selecting the type of work he/she wants to do, and so on. Having said that, contracting is not for everyone. There are a lot of responsibilities that go along with being a self-employed business owner.
In this article, we will outline what you need to do to get started as a contractor under a limited company. If you are planning to work under an umbrella company, most of what you read here will not apply. Umbrella companies are considered employers of those contractors who work for them; contractors sign up, provide the umbrellas with expense receipts and go to work. The umbrella handles everything else.
A limited company works differently. Under a limited company, the contractor is both a salaried employee and a company director. As a director, the contractor is also responsible for making sure all tax reporting issues are handled according to the law. ICP Accountancy services exist to come alongside company directors to handle these sorts of issues. Our flat rate fee schedule makes our services affordable as well.
Assuming you are choosing a limited company structure, here is what you need to do to get started:
First and foremost, future contractors need to assess their situations to determine if contracting is the right way to go. Do you have what it takes? Are you prepared to take legal responsibility for owning your own business? Here is a list of key things to consider:
Self-Motivation – A successful contractor must be a self-motivated individual capable of going out and getting work. If you are a person with a successful track record as a self-starter, you should be okay.
Financial Stability – Working as a contractor means you will experience both times of plenty and times of leanness. You need to have sound financial management skills in order to make sure you always have the money to pay your bills.
Legal Responsibilities – Contractors are required by law to file certain types of paperwork, collect and pay taxes, etc. They also have the responsibility to be familiar with IR35 legislation. ICP can take care of much of the legal responsibility for you, but you still need to know how it all works.
Flexibility – Remember that contractors are not employees. As self-employed individuals, they need to be flexible enough to respond to client demands at a moment’s notice.
These are just four of the most important things to consider about being a contractor and limited company owner. If you believe you have what it takes to be a successful contractor, you are ready to move on to the second step.
Your second step as a new contractor is to establish a limited company. In order to do this, you will need to file paperwork with both HMRC and Companies House. You will also need to register for the VAT and PAYE schemes. The paperwork is not difficult to complete, but it can be confusing if you have no experience with this sort of thing.
You will not have to wait until you hear back from HMRC and Companies House to start securing contracts. That's good because it can take quite a while for the government to respond. If anything is found in your paperwork to be incomplete or inaccurate, you will be sent a notice of explaining how the situation can be rectified.
As a speciality accountancy firm for independent contractors, ICP can take care of establishing your limited company. We will even act as an intermediary between your company and HMRC and Companies House for all future transactions. ICP makes setting up your limited company fast and easy.
With your limited company established, you are ready to go out and get some work. For most contractors, the first contract is the most difficult one to secure. After that, it is a matter of providing quality services that result in new contracts. The contractor who does good work at a reasonable price will build a business through steady word-of-mouth advertising, supplemented by marketing.
Keep in mind that you will need to keep track of all your business expenses as you go. Some will be deductible, others will not. Working with ICP gives you access to our customised software platform for uploading, tracking, and reporting your business expenses. You can start using our software as soon as you sign up for our service – you do not need to wait until the government approves your paperwork!
We cannot stress enough that contractors be aware of IR35 legislation when negotiating contracts. It is incumbent upon contractors to make sure contracts are structured outside of the legislation unless they are willing to abide by the obligations of IR35. The latter choice is usually not the correct choice given the fact that IR35 all but eliminates the tax advantages of being a contractor with a limited company.
The last step in becoming a contractor is making oneself familiar with the types of paperwork that need to be filed – and the schedule for filing it. This is crucial to keeping the government off your back. You will need to know when to pay VAT, when to make PAYE contributions, and when and how to file personal and corporate tax returns. By the time the first tax year is complete, you will have submitted the full compendium of required paperwork.
We would advise any new contractor just starting out to seriously consider working with a specialist accountancy firm such as ICP. We relieve you of the administrative responsibilities involved in accounting and taxation so that you are free to concentrate on serving your clients. Our affordable service is just what you need for worry-free accounting.
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