Contracting & tax

[dontbeahater]

Hi there, currently working as a PM in IT in central London, full-time. Looking to start contracting for various reasons.

How do I work out tax on self employed income going forward?? I'll be PAYE for several months of 2019/20 and I understand the tax rules are changing for contractors... ? But I'm not sure how. Can anyone enlighten me pls??

Both me and DH are Contractors. We do it through our own ltd company but you may want to consider an umbrella company, it will cost you but is easier at least in the initial stages.
Our accountant does all our VAT and tax stuff and you need to watch out for IR35.
Also we have professional indemnity and public liability insurance as some clients insist on either or both. We also have insurance against a HMRC investigation
We are members of IPSE, which provides a lot of good advice as well
Happy to answer any questions

Wot Hoppinggreen said plus look out for more changes to the IR35 rules coming in in April 2020.

Wow thanks lots of questions.... I know less than I thought I did.

What's the tax difference between an umbrella and Ltd company, pls?

Crikey I've tried reading IR35 but it's huge! I'm guessing this is the April tax change I've heard about next year. So I'll pay more tax after this point?

April 2020 so I'll pay more tax at this point

Most of the IR35 legislation has been about attempting to close loopholes which were exploited to reduce the tax employees had to pay, if the posed as a contracted service rather than an employer, so they got to take home more without costing more to the employer.

April 2020 is no exception , the responsibility for determining employment status will shift to the employer, who would be thus be liable to enforce any additional tax due

If you are a genuine contractor, with lots of different clients buying a service from you there will very likely be no difference for you.

If you really work only for one employer and are just 'pretending' to be a service in order to pay reduced tax then very likely your tax bill will change, as the employer will now carry the risk if you get caught so will no longer allow the pretence.

An umbrella company take care of all your tax etc, so you kind of work for them and they work for the company you contract to ( although usually there is another company in the middle as well). So for example
End company
Supplier
Umbrella (if using)
You

If you are a ltd company it cuts out the umbrella but you need to do all the regulatory stuff yourself.
IR35 doesn’t affect us as there are 2 of us working for different clients within our own company and to be honest most contracts try to find a way around it, including ironically Public Sector ones BUT if you work for just 1 client it’s going to get harder to avoid it from what I understand. Having said that HMRC have recently lost quite a few high profile prosecutions so who knows?
A good accountant really should pay for themselves, there are a lot of ways of not paying tax than you need to, of course while paying everything you should! There’s also National Insurance and Pensions to consider
We love contracting, the money is great with no career politics and when you leave work you leave work and we have both turned down permanent jobs several times but it is effectively running your own business so you need to put time in getting your next contract and various admin. You also need to appreciate that you are pretty dispensable and any sickness or holidays are unpaid. For example we are going away for 2 weeks soon and while the holiday itself wasn’t expensive it’s costing thousands in lost earnings

That should say not paying more tax than you need to - I’m not advocating tax evasion!