So, I may soon be doing some IT contract work, having always been a permie. Initially it'll only be for about three months, but I may well do more at a later stage.
It's all new to me, but I know that my choice is basically to set myself up as a Ltd company or to work through an Umbrella company (e.g. Drole).
Whilst I do some further Googling, I wondered if anyone would care to explain the pros and cons of each? I believe there are a at least a couple of STW dwellers who work in IT...
I set up a limited company when I got a 3 month contract. It seemed a bit of over kill for 3 months but the contract stretched to a year. You can get much better tax breaks and get a reasonable accountant and it doesn't cost much.
I cannot think of a benefit to umbrella companies other than they do the admin (but charge you for it).
If you want, I can email you all the details of how I set up my company and give indicative costs for accountants and insurance.
Takes about 5 minutes to set the company up. I spent longer thinking of a name for it.
Some useful stuff here - http://www.sjdaccountancy.com/about/ourservices/ltd_vs_umbrella.html
Something like Crunch could offer a middle ground perhaps http://www.crunch.co.uk/
Having done both Umbrella and Ltd Co, I would always go Ltd Co now.
Mine is engineering rather than IT but the principles are the same
I can put you in touch with an Excellent accountant who looks after me and a whole load of my colleagues all over the country if you like ?
WCA, i'm interested in your experiences and would like to compare costs as this is something I have been thinking about for a while. Can you mail me. Email should be in the profile. Thanks
£50 - Set up company via some internet based company I Googled
£0 - Set up company bank account with Alliance and Leicester Business Banking. No Bank Charges
£380 - Professional Indemnity Insurance - £1,000,000
£1,500 - Accountant paid AFTER 1 year. This was a bit high as I had to go VAT registered and most of my work was outside the EU. It included all company accounts and personal tax returns
My experience
Not hard to set up your own company but tedious so potentially not worth it for 3 months.
If you're going to earn about £5K over the higher tax bracket it's worth doing as your tax bill is essentially 20% instead of 40%.
I use an online portal (can give you a referral if you want) but if I was to start again I'd be more likely to get an accountant I like, understands what I need and can knock up a speadsheet and give me some instruction from time to time. The only bit that seems tricky is deciding whether to go vat registered or not.
Only go VAT registered if you are buying a lot of equipment or you have to because you beat the upper limit. Both unlikely for IT consulting for 3 months.
Only go VAT registered if you are buying a lot of equipment or you have to because you beat the upper limit. Both unlikely for IT consulting for 3 months.
Why ? if you go on the "Flat Rate Scheme" FRS its free money !!!!
Bazzer
Bazzer - It costs more for the accountant. It is admin hassle sending the money to the VAT man. My total equipment purchases were less than £1,000 and most my work was outside the EU so VAT was a nightmare.
Accounts Spreadsheet was really simple.
I kept track of the invoices issued with these 5 columns. Outstanding showed what was left to be paid and Paid By was just a reference to the payments made against the invoice.
Date, Invoice, Amount, Outstanding, Paid By
I kept track of the payments received with these 4 columns where the last column was just a reference to the Invoices
Date, Payment Ref, Amount, For Invoice
I had a separate tab for the cash book which was equally simple with 5 columns. The reason was a where I recorded things like 'Dividend Payment' or 'Invoice Paid' and the Balance was a calculated running total.
Date, Money In, Money Out, Reason, Balance
Sent the spreadsheet to the accountant when requested and he did the rest.
or go flat rate VAT registered if you will be buying very little, your client is VAT registered so will not be worried about the VAT added to your bill and you anticipate this going on for more than three months (I don't think it worth the hassle for three months). Check the figures, it may pay you to collect VAT for the government 
WCA
My work is mostly (all) in the UK with VAT registered companies. All I do is fill in a spreadsheet and send it to my accountant too, they send me the figures to put in each box on the VAT form.
My accountant costs IRO £95 + VAT a month which includes my tax return , end of year accounts and electronic filling of all the various gubbins that need doing.
Certainly for me it makes sense as its a fair few quid over the year.
The FRS scheme makes things really easy, in fact if you opt for cash accounting, you can get all you need for a VAT return from your bank statements.
Bazzer
Think I am similar to bazzer. My accountant cost me £68pm which increased to £88pm to deal with VAT & the increase of £20pm is more than paid for by the flat rate scheme (which is very simple). Those costs don't cover payroll, I do that myself.
I'm simple though, providing a service for a fee and even when working overseas I'm charging a UK company.
Can I hijack this thread for a bit please?
I'm gonna work in Germany though my Ltd Company for 6 months (the limit, apparently) - does it juts work the same way with invoicing and tax and all?
Different countries and different rules. Check before you go. Some tax/vat stuff in Switzerland has to be delivered in person by the person applying and separately for every invoice which is why lots of people don't try and claim even though they are entitled.
I'm an accountant dealing almosrt exclusively with limited company contractors / freelancers so hopefully I can give you some good free advice here.
In all but a very limited number of circumstances, contracting through a limited company is better financially than through an umbrella. Each situation differs but if you are outside IR35 - an you most likely will be - you are able to arrange your affairs so that you only pay around 20% - 21% tax IN TOTAL if you earn less than £100k pa and you are married with a lower than £20k earning spouse. This is done by issuing shares to both you and your spouse and taking a dividend whihc is taxed differently from PAYE income.
VAT Flat Rate Scheme is - as someone already posted - free money and it is unlikely to make any difference to your accounting fees.
Setting up a company is simple - most accountants will do it for free if you ask them (that's our strategy anyway) and if not it can be done online for £40. It can be a PITA opening the company bank account but the rest is pretty straightforward.
Ongoing paperwork is minimal - a simple spreadsheet recording ins and outs is all thats necessary. Again, most accountants will provide you with a template.
Picking the right accountant is important - don't base your decision on fees. Get some recommendations and speak to a couple. IMO, be wary of the big players as they can provide a very impersonal service, Also, watch out for generalist accountants who may not have the specialist knowledge you have. A balance between the two IMO is what you're after. As for fees £100 a month is about right and they're going to save you at least 4 or 5 times that if they know what they're about.
HTH. Feel free to ask anything else.
(Not touting for business btw - just happy to help a fellow pedaller)
Setting up a limited company
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