Question About Contracting and Ltd Companies

radderfire · 5 May 2015 at 23:02

Hi Guys

If you were going to contract for a large company, e.g. as a software tester, do you normally have to have a Ltd company? I know there may be tax advantages to having one, but is it a necessity? If they won't consider you unless you have a Ltd company, what's the reason for that?

Thanks

mattyfez · 5 May 2015 at 23:07

The two main options are Ltd or umbrella.

Umbrella is where you are technically employed by your accountant.

I don't see why any company would care which you do, as your just selling them a service.

You'd have to have a legal set up though, they won't just pay you, as they could be liable for tax issues.

KaHn · 6 May 2015 at 02:03

Depends how long you want to contract for. Both have benefits but being a Ltd company is slightly more complicated (and more onerous on you sorting everything out) but has more benefits.

KaHn

dowie · 6 May 2015 at 05:16

radderfire said:
Hi Guys

If you were going to contract for a large company, e.g. as a software tester, do you normally have to have a Ltd company? I know there may be tax advantages to having one, but is it a necessity? If they won't consider you unless you have a Ltd company, what's the reason for that?

Thanks

usually they'll be a bit funny about sole traders so you usually would have to contract via a ltd company

this can be a ltd company set up by yourself or some umbrella company you pay a fee to use

I'm not sure that it is actually a necessity, though in practice it usually is required that you work via a ltd company

Bear · 6 May 2015 at 06:48

As already said, the two options are to use an Umbrella company or a Ltd company. Which one you choose is up to you, but As Kahn said it depends on how long you are going to contract for.

With an Umbrella, you can just finish your contract and call it quits (easy option if you are only going into contracting temporarily), but with a Ltd company you either wind your company up if you cease trading or you make your company dormant but you still have to file a return and submit your accounts. If you dont do either yourself, then you have to pay an accountant to do it for you.

radderfire · 6 May 2015 at 10:06

OK, thanks guys.

Why is it that they get funny with sole traders? What difference does it make to them? I understand that it's tax inefficient for me, but why would it be an issue for those hiring? Is it because they have to be seen to be hiring a true contractor rather than someone that could otherwise be considered an employee?

Thanks

dowie · 6 May 2015 at 11:53

AFAIK the issue with sole traders is that when you've got an agency involved they then would become responsible for employers national national insurance etc.. So they will refuse to deal with sole traders and only let people contract via ltd companies.

If you're not going via an agent then I'm not sure there is any real reason why you couldn't contract as a sole trader instead of via a ltd company.

edit - then ago maybe there are valid concerns, risk that you could be considered an employee, risk of them becoming liable for employers NI

PooKer · 6 May 2015 at 12:16

The main reason you need a limited company or an umbrella is the professional indemnity insurance and public liability (costs me £16 a month for mine). I started with an umbrella myself as I hadn't planned on going long term contracting but I then swapped to a Limited Company (with a company that just took the mick with fee's).
Umbrella's will take a decent size cut.
Big accounting firms take £150-£200 a month off you.
I myself use a local guy whos £50 a month and deals with my company tax return and my personal tax returns. Tell's me how much I can pay myself a month and will work out how much I need to pay HMRC etc. You'll need a business bank account. a lot of the local high street branches will do you a year free then start charging. I myself use Cater Allen who are free. Its all online (owned by santander) but I have a debit card & cheque book. But if your via an agency you'll just invoice them once a month etc.
Free bank accounts do have limits like the number transactions per month, cash limits etc.

You can also go VAT registered. But this is down to preferences (unless your turn over is £82,000 a year then its compulsory). Say the day rate is £100 a day they'll then need to pay £20 on top for VAT. you'll get a small cut of that £20 but say you then want to start charging members of the public. They'll then have to pay VAT as well. so tis swings and roundabouts.