Setting up as a contractor help!!

[Whereisthewine]

Hubble taking the plunge and setting up as a contractor..can anyone advice in jargon free language how he pays himself a salary from this please? Hearing stuff about dividends for tax purposes but at a bit of a loss 🙈

He needs an accountant and to take proper professional advice

Accountant to set up a company
Company bank account
proper advice on how to set up and run a company (Council may help)
Insurance for proffesional liability
IR35 compliance

Just a few things to get started

He can either set up a limited company, or he can work via an 'umbrella company', who act as an intermediary between him and whoever he is working for.

As others have said, he probably needs to have a word with an accountant who can talk him through the pros and cons of each option.

If he has a limited company, then the company invoices for his work and the money goes into the company. He can then get it out either by the comany paying him a salary, or a dividend.

If he uses an umbrella company then the umbrella invoice the client and receive the payment. will make certain deductions and then pass the remainder on to him.

Fab thanks all! I did suspect an accountant was maybe needed, we're both clueless with this stuff!

Which is why you MUST get proper advice, you could end up in financial difficulties or prosecuted as a very worst case scenario.
Other than the admin side does he have Contracts lined up already?

You do not need an accountant to set up a company or open a business bank account. Visit companies house and Tide’s website.

what line of work will your husband be in?

i had a business for 15 years (sole trader then incorporated) trading my time for money. It didn’t need an accountant. But that was because there was nothing requiring accountancy advice - it was an ultra-simple model with very low costs.

what you need to do is get an understanding of the nature of the business you’ll be doing and get some free book-keeping software and learn how to use it. Then you can use an accountant as an accountant not as an admin assistant.

does that make sense? I’m not knocking accountants, but if you use them for ultra-low level stuff and don’t get yourself educated you won’t be in the driving seat - and they aren’t magicians.

Accountant definitely. I have a LTD company and my accountant basically pays for himself. Worth his little weight in gold.

First things first you (or he) need to understand IR35. If the role he takes is 'inside IR35' then he will work via an umbrella company and be paid PAYE (so regular tax and NI).

If 'outside IR35' he can set up as a limited company, That has tax advantages as you can expense some items and pay yourself via dividends. But you need to understand properly what you are doing. If he uses an accountant then use one that specialises in contractors. They don't charge that much and it is worth it if he is not 100% comfortable doing it yourself.

He will also need to be VAT registered if annual income is £90k or over

Steer well clear of companies that advertise they can save you large amounts of tax by various means (off-shoring, directors loans, etc) - all very dodgy

And remember the money in a limited company is not your (or his) until dividend or salary payments are made. And make sure money is kept aside for various tax bills. I know people who have been made bankrupt by HRMC because they thought they could just spend all the money that came in.

Some people with limited companies also have their spouses as 50% shareholders and then split payments between the two of them to reduce overall tax bill. I think this is sailing a bit close to the wind if HMRC investigate but plenty of people do it.

As said above, first stage is to research whether the contract is caught by IR35 or not. That will dictate the pros and cons of forming his own limited company rather than using an umbrella company.

Unless you've got the time, inclination and ability to do lots of research yourself, then a contractor-aware accountant is almost essential as there are lots of traps to fall into which can cost you more in the long run.

We regularly took on clients who had screwed up by forming their own limited company without really knowing what they were doing and making mistakes during the set up which cost money further down the line. Or didn't realise they should have been VAT registered and ended up with late registration penalities, interest and surcharges! Likewise also some clients who took on contracts without realising the implications and that their "take home" was a lot less than they thought because they hadn't factored in costs such as employers NIC, umbrella fees, apprenticeship levies through using an umbrella, when they'd have been better using their own limited company even if caught by IR35 which is unusual but can happen.