Working as a contractor

PH4T

Does anyone have any experience working as a contractor and setting up your own Ltd company?

I have heard there are good tax benefits in doing this.

Ponster

The tax benefits depend on your personal circumstances (i.e. expected income) so may not be applicable to you. By setting up a ltd you can avoid paying Class 4 National Insurance which is about 9% of your profits. YOu will though have to pay corporation tax.

Personally I decided not to do this as NI contributions go towards HNS, unemployment benefit, sickness allowance and it's a tax that I can afford.

Should you decide to go down the Ltd route all you have to decide is if you want to manage your accounts yourself or pay an accountant to do so. It really depends on how organised you are and how much you enjoy working out VAT payments

You'll find lots of examples online such as here. Watch out though that most of the sites suggesting that you become a Ltd are after your accounting business.


edit : I'd also read this blog article which may help you. His example works for £40,000 but once you get up to £80,000 a ltd becomes more interesting. The figures 'prove' that a ltd company saves yo from paying National Insurance but the overall tax will be the same.

http://pointbeing.net/weblog/2012/02/contractors-a-limited-company-is-not-tax-efficient.html

rgmmg

Although that link implies the tax benefits are negligible at the same level of income, you would, of course, be paid more as a contractor on a day rate vs. salary given you forgo holiday, pension et al. Throw in the possibility of employing a non-working partner or similar as an employee (increasing your tax threshold further), the 5% of the 20% VAT you can collect on the flat vat scheme (depending on revenue) and it's pretty clear your better off contracting.

Dividend tax is expected to change next year which will mean contractors are a little worse off (by c. £2k up to the first £40k).

PH4T you can find more details at the link below which should help you to decide if contracting is suited to your circumstances:

http://www.contractoruk.com/

Ponster

rgmmg wrote: »

the 5% of the 20% VAT you can collect on the flat vat scheme

Yep. I claim 15% and pay 20%. every little helps !

The link isn't comparing contracting Vs. salary but contracting as a sole trader vs. a ltd company.

OP, I'm a sole trader. I don't know anyone else (in IT) who is though. I could be making more as a ltd. but I've taken the easy route.