The key decision when starting out as a contractor is to decide what type of business model you will follow. This is an important choice as it will affect how much tax you will eventually pay. Our expert contractor accountants can advise you on the best options.
Limited Company
A limited company gives contractors “limited” liability which means that they are not personally liable for any financial difficulties faced by the company. Business expenses are deducted from the company’s profit meaning that you will end up paying less tax at the end of each tax year. Note that a Limited company also pays Corporation Tax.
It is also important for you to comply with your filing obligations to Companies House, which include, notifications of changes to the officers of the company, the details for each officer, as well as filing each year’s accounts and your confirmation statement.
Partnership
Two or more people running a business together. Each partner is taxed on their share of the profits, much like a sole trader.
Sole Trader
The easiest and most straight forward option for contractors as there is no separation between you and the business and all profits are yours. Note, though, that some clients are less likely to work with contractors who are sole traders.
Umbrella Company
An umbrella company deals with things like sending invoices and chasing payments making you, the contractor, an employee of this company. It is a simple solution for contractors but you will pay higher taxes due to the fact that you are an employee and not a contractor.
Harrison Accountants’ many years of accounting experience means that we can provide a great specialist accounting service for contractors.