You've Built Your Own Business
...Why Let Someone Else Run It?
The decision to become a contractor is a big one, and there are many reasons for making it. Maybe you’ve decided you no longer want to work for The Man. Maybe you just want to manage your own time or take control of your destiny. However it came about, it's an opportunity to become your own boss - and that's reason enough for most.
You can be a contractor as a Sole Trader or a Limited Company, and there are good and bad points to each. For example, many firms that employ contractors prefer Limited Companies because of the lower perceived risk they represent.
Tax management is another of the reasons contractors choose to operate through a Limited Company. However, if you're not used to doing the paperwork yourself, it can also be one of the most intimidating of your new responsibilities. RIFT can help you to understand the regulations and offer financial advice to get things running to your advantage, rather than the taxman's.
Working through a Limited Company, a contractor's tax liability falls into three areas:
As contrators have some particular needs we do have a specialist package designed just for contractors.
RIFT can handle all of these, dealing directly with HMRC as your authorised agent if you'd like. Of course, there are other considerations, such as VAT, and RIFT can provide expert advice in all areas.
To slap on a warning sticker here, the preferential tax regulations for Limited Companies only apply if your contracts don't fall within the IR35 "intermediaries legislation". We can show you how to prove you're not an employee pulling a fast one by masquerading as an independent contractor - but check our IR35 page for a basic rundown and a list of the kind of questions you'll need to answer.
Finding a balance between your various types of income is vital in keeping your company profitable and tax-efficient.
Talk to RIFT Accounting to see how we can keep you on the right track.
Corporation Tax comes out of trading and investment profits. Essentially, if your business is based in the UK, you need to be aware of this tax to avoid any nasty surprises and make sure you're not missing out. Check out our Corporation Tax page for more information.
The deadline to pay your Corporation Tax bill is usually earlier than the one for submission of the associated Company Tax Return. If your turnover is under £1.5 million, you generally have twelve months from the end of your accounting period to file your return, but only nine months to pay any tax due.
Tax on Dividends
If you're a contractor operating a Limited Company, you'll probably pay yourself a mixture of a salary and dividends for the considerable tax savings. Dividends are payments made to the Shareholders of a company. In the case of your Limited Company, this generally means just you.
This can be a complicated area, but we can advise you.
PAYE and National Insurance
Income tax and National Insurance contributions come out of the salary you pay yourself. Contractors who aren't caught by IR35 often pay themselves a very low salary (e.g. minimum wage) to keep Income Tax and NICs (for example, class 2 and class 4) to a minimum, while taking the remainder of their income as dividends. Because you're automatically your company's Director, you'll need to contact HMRC to set up a PAYE scheme to pay yourself.
It's a lot to take in, but RIFT can help with all of this and more - and our Clear Books cloud accounting package will give you complete control over your finances.