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Specialist contractor accountants, SJD Accountancy has also reported that 2013 has been one of its busiest years to date as owning your own limited company becomes increasingly popular.
Here, SJD Accountancy looks at some of the issues to be considered if you are thinking of embarking on a freelancing career:
Why do so many make the move from permanent to contracting?
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Skills Development - working as a contractor gives ample opportunity for contractors to develop and grow their skill set. As experience and network contacts grow within their sector, opportunities will increase with other contractors contacting you with regards to opportunities with their clients.
Financial benefits - an average contractor rate can easily be double that of a full time employee, or even more. With companies such as Manpower reporting daily rates of up to £1,000 - as stated in their Employment Outlook Survey for the first quarter of 2014 - it comes as no surprise why so many make the switch from permanent to contracting.
How to contract?
Many looking to work for themselves might have heard about umbrella companies, where as a contractor you become an employee of the umbrella company. You then submit timesheets to the umbrella company who will then invoice the client and pay you as a PAYE employee.
On average contractors will take home around 60 to 65 per cent of their contract when working through an umbrella company, but these are usually ideal for contractors on short term contracts, around three months or less, on around £25,000 per year.
For those who are looking at contracting as a long term career and expected to earn over £25,000, a limited company is often the most tax efficient option.
The benefits of a limited company:
More tax efficient – Many contractors choose to set up through their own limited company rather than work under an umbrella company. This is the most tax efficient way of contracting depending on your contract rate. Typically, you can take home around 75 - 80 per cent of your contract rate, which can equate to around £15,000 per year more on a £350 daily rate compared with using an umbrella company.
Claiming company expenses - As a limited company you can claim on a wider range of expenses such as accountancy fees, IT equipment and software, phones and internet services, travel and other expenses which are part and parcel of you running your own business.
Flat Rate VAT scheme - Often limited company contractors have very few, if any expenses, which is why so many take advantage of the Flat Rate VAT Scheme. You are charged a flat rate on the income you generate rather than the current rate of 20 per cent. This can save you £1000s for your business.
Limited company, limited liability - Working through your own limited company means that if your business fails you cannot be personally liable for the debts. Therefore any personal assets, such as your house or car, are protected.
More credibility and lower costs - Operating as a limited company can often give your company and your services more credibility with suppliers and clients. Knowing that you are taking your business seriously can make them feel that you will take their business seriously too.
Setting up your own limited company
If you are thinking about a new company for a new year, then setting up your own limited company is easy....
1. Choose your company name
This is the fun bit where you get to think up what your company stands for or what your service or brand is. For some it involves a name or a place, for others it’s a description of your service or product. It’s that simple… think of a name, and check it is available, this can be done on SJD’s free company name checker.
2.Form your company
The cost of forming a limited company with SJD Accountancy is £125 + VAT and takes about five minutes online. For this you will receive VAT and PAYE registration, both can cost £75 each plus VAT if you apply separately. In addition, SJD provide online and telephone support to help you through the registration process. Once you have formed your limited company, you will receive all the necessary limited company documentation and an application for free business banking, VAT and PAYE registration details.
3. Appointing a good contractor accountant
Although limited companies do require a little more paperwork and admin, it should only entail around 15 minutes every month or so, but what about the rest of the year? Sure for some an accountant may just be there to fill out the forms to HM Revenue and Customs, but what about financial advice, paperwork queries, tax deadlines… these are just some of the areas in which appointing the right accountant can benefit in growing your business?
Claire Johnson, Managing Director at SJD Accountancy said: “We have seen a huge growth this year in people becoming contractors and forming limited companies. The double dip recession and the panic that this was caused has made many people want to be in charge of their own destiny and take the initiative to become their own boss. Many are amazed, and relieved, to realise that having a limited company really isn’t that hard work. We like to work alongside our clients to advise and consult them on the best option for them, to support their businesses to be as successful and profitable as possible.”
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Susie Hughes © Shout99 2014
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