If you're a contractor who can work outside of IR35, working through your own limited company is by far the most tax-efficient option for you.
This is often referred to as operating a Personal Services Company or PSC and would see you become the director of your own limited company.
As well as being the appointed director you are also a shareholder in the company giving you complete control over your company's finances and affairs.
It’s common for a director to pay themselves a salary as an employee, with the balance of their income received in the form of a dividend. This is because dividends aren't subject to National Insurance, and also benefit from a lower tax rate than PAYE income.
You can also claim tax relief on a range of expenses, resulting in higher take-home pay than with any other service.
PayStream's My PSC service provides you with tailored and pro-active advice, not only for your company, but you will also get access to our experienced IFA partners who can help you with securing that mortgage, loan or other financial product.
You will receive all of the accountancy and administrative support you need, including setting up the company, invoicing, help with tax returns and more, all for just one monthly fee.
You will also get access to our industry-leading PSC Insight portal, which offers a simple, useful and intuitive way to access all those important figures 24 hours a day, 7 days a week.
Whether you just want the headlines or to delve deeper into the detail, PSC Insight has it all.
If you're looking for key information regarding your company finances, PSC Insight provides an account summary, which lets you know straight away what to keep back for tax and what’s available to withdraw, a to-do list from your dedicated accounts team advising what you need to do and when, and a tax timeline that helps you to plan your tax payments well in advance.
This is just a quick overview of what’s involved with working through a limited company and the benefits that can be gained when choosing PayStream as your accountancy service provider - get in touch with one of the team today if you want to find out more.
IR35 looks at whether a limited company contractor is actually any different than an employee taken on directly by the end client. There should be noticeable differences between how limited company contractors and regular employees work otherwise, IR35 may apply.
The administration of IR35 is constantly evolving to make it work more efficiently – HMRC’s guideline’s and their IR35 helpline have been improved and the business entity test will be abolished in April 2015 but there are a few simple things you can do which will help prove to HMRC that you are working outside IR35.
Begin when you receive your contract – have it checked over by PayStream who will advise you whether it helps or hinders with your IR35 position. We will also suggest that you complete our Working Practices Questionnaire to help us understand how you interact with the client on a daily basis. Be proactive with IR35 – take IR35 advice regularly so that you could demonstrate to HMRC that you did everything you could in order to work compliantly.
A limited company contractor that works when, where and how they like is more likely to be judged outside of IR35 than someone who is supervised, trained and appraised. Providing your own equipment and paying for your own training can sometimes help too.
A key element of contracting is that you have a personal detachment from the client – that means that you can substitute your services to someone with a similar skills base. You’re there to provide a defined service for a specific period of time and you should have no expectation of further collaboration. It's purely a business-to-business relationship and everyone should know that.
You can further assist your case for falling outside IR35 by staying away from company benefits, such as holiday, sick and maternity play, as well as avoiding use of the client's facilities and even social events like Christmas parties.
Each contract you work on could be judged on a case-by-case basis, but if you follow these tips, HMRC would be less likely to find you inside IR35. Contact PayStream now for helpful and clear advice on your IR35 status.
When you decide to work on a contract basis, you can either work through an umbrella company or become a limited company contractor. But before you decide on which option is best for you, there are a few things you need to consider.
First off, you need to think about how each of the options work – with an umbrella company, it's pretty simple as it becomes your employer. This means that your agency pays the umbrella company, and the umbrella company deducts the necessary PAYE and National Insurance contributions and pays you your salary. There’s very little admin to do.
Even though an umbrella company is the simplest way to work, it isn’t the most tax efficient. By comparison, if you set up as a limited company contractor, as a shareholder and director, you can draw some of your funds as a dividend rather than being paid a full salary, so your overall tax burden is reduced.
Although the limited company route is the most tax-efficient way to work it isn’t the simplest. As the director of your own limited company it is your responsibility to ensure all of your company paperwork and admin is taken care of, but that’s where we can help. Our limited company service, My PSC, is a safe pair of hands that provides help and advice on running your limited company, leaving you to get on with what you do best - contracting.
Making your choice also depends on what kind of contractor you are – if you only plan on doing it for a short spell and don't want to go to the effort of setting up a limited company, an umbrella company could well be the answer for you.
However, if you want to work for numerous clients, be tax efficient and want full control of your finances, a limited company may be best. To work in this way you also need to ensure that your working practices and contracts make you a genuine contractor, as defined by IR35 legislation, rather than a disguised employee. If you’re unsure of your IR35 status PayStream offer an IR35 review service which is free to existing PayStream My PSC customers.
Inevitably your circumstances will change, so you may initially choose to work through an umbrella company but then as your career develops, see more value in setting up a limited company. That's doable, but keep an eye on your IR35 status if you follow that path.
So whether you want to work through an umbrella company or you need help with setting up and running a limited company, contact PayStream – it makes perfect sense.
Setting up a limited company can bring with it a number of responsibilities, including several taxes that you need to pay over the course of the year.
While this may seem daunting, don't be put off, as you can get expert advice from your dedicated PayStream accounts team, who will help you keep on the right side of HMRC.
One of the first things you need to think about when you set up a limited company is how you're going to pay yourself. Usually, this is done through a mix of salary and dividend, with the former liable to Pay-as-you-earn (PAYE) tax and National Insurance contributions.
These are payable every quarter, but your dedicated accounts team will calculate how much you have to pay and let you know when it's due so you don't miss the date.
If your company becomes registered for VAT, you'll be responsible for paying 20 per cent VAT on all invoices that are raised by your company. Again, you need to inform HMRC of these figures quarterly and your dedicated accounts team will send you the calculations for review, along with details of the required payment. They will then submit the agreed return to HMRC on your company’s behalf.
Following your company's year end, you'll be expected to prepare and file your statutory accounts, but don't panic – your dedicated accounts team will prepare draft accounts for you and give you a call to discuss the details.
They will also provide you with advice on sensible tax planning, before you decide on your final dividend for the year.
Once you've signed and returned your accounts, your team will file them at Companies House on your behalf.
Any income you receive for work carried out through your company is classified as ‘sales’. Your sales less your genuine business expenses, generate a profit. Profits attract a corporation tax of 20 per cent. The dedicated accounts team will discuss this with you in conjunction with your annual accounts and payment will usually be due nine months after your company year-end.
Finally, you'll have your annual self assessment form to complete, which details your personal earnings and calculates any additional personal tax which is owed to HMRC – PayStream offer a Personal Tax service to help with this.
Don't struggle alone with your new responsibilities. We are on hand to help you along the process to ensure you have time to focus on your work and personal life - just another reason why you can count on PayStream.
The rules and regulations on Personal Tax Self Assessment set out by HM Revenue and Customs can be quite time consuming and complex.
And that's without considering the penalties involved for late submission and submission of incorrect Returns! There are many reasons why HMRC will require you to complete a Tax Return.
Among these are being or becoming a company director during the tax year, receiving income, from letting property, being in receipt of dividends or savings income during a tax year in excess of £10,000 gross, or making a Capital Gain following the sale of an asset.
In addition a Tax Return will be needed if you have multiple sources of income, and if you have dual residency, or are working abroad.
As part of the service we'll also remind you of all the important self-assessment deadlines.
These include reminders of when and what you must pay, and if you're due a refund, then we'll arrange for HMRC to pay it directly into your bank account.
On top of that we promise to try and explain tax matters in plain English.
Whatever your situation, if you're unsure of your position or believe you should be completing a return, then PayStream can help.
We have an experienced team of Tax Professionals who deal specifically with personal tax, who can advise on what steps you may need to take, if any, to ensure you don’t fall foul of HMRC legislation. To find out more, contact our Tax Team today.