Contracting

Steeve,

I have been contracting in IT for about 5 years now. I have my own Ltd company. It is easy to set up and costs about £100, I bought mine off the shelf from a law firm who do these things -can't remember who they were though. The company is usually pre-registered, you then take it over and become the director, job done. This is of course an allowable expense and can be offset against your profit.

You may find it worthwhile registering for VAT even if you do not think you will exceed the minimum level, if you work for a full year you probably will. Go for the flat rate VAT scheme - it is simple to use you just total up your invoices for the period and then apply a percentage to it and that is what you pay over to HMRC. You keep the difference - this works out at approximately 1 day's pay per quarter. Not to be sniffed it takes me about 5 minutes every three months. Of course if you buy a lot of VATable things for your business you may be better off on the normal scheme.

You will need insurance to cover you against litigation. I joined the Professional Contractors Group and get my insurance cover through them. Their site is full of good advice and you get regular news letters and advice about legislation. They may be able to help with regards to an accountant in your area, it's better to have one you can talk to, set up an initial meeting to discuss the best way to do your accounts etc.

You will need a bank account - look around for the best deal, assuming that you will not need a loan and can do most of your transactions online then the Abbey have an account which is free if you stay in credit for the life of the account.

Keep your records up to date - spreadsheets will be fine - your accountant may try and persuade you to use an accounting package but it's probably over the top for a one man band contractor company.

Remember to keep receipts for everything and be sensible about what you put through the books - if it is something that could be used for work then it's ok - hi-fi is not that would probably be put down to director's drawings.

Here are some valid expense items...

• business mileage is valid at 40p per mile for first 10,000 miles 25p thereafter.
  
• Stationery,
  
• tea/coffee, milk,
  
• technical books/magazines
  
• computer hardware and software, peripherals, consumables (printer cartridges, paper, CDRs, DVDRs etc).
  

Do your expenses on a monthly basis and take a payment equal to the total each month.

Oh, and good luck, it's a scary place out there at the moment.

I can only give my own experience, which is that it was worth setting up a limited company. I pay a book-keeper/accountant c.£600 each year to produce the accounts from my records and to liaise with the lady (an ex-tax inspector) who does my tax returns (£350) and acts as company secretary (£120). All the above expenses are charged to the company.

I do my own VAT returns as they are straightforward. I could probably do the rest also, but I'd rather not!

Whilst I would heartily recommend these people, they are not local to you. I would seek out similar small businesses operating locally to you, rather than the larger, or even medium-sized, accountancy firms - where you will probably pay rather more, yet not deal with the same person each year.

So I think one key is finding the right person/people to administer this for you - ask around as much as you can.

Is it worth it? I've not done the sums recently - I set up the company nearly ten years ago, but it was worth it then.

Hope this helps.

And seagull is spot on about the flat rate VAT scheme. The "other business services" category attracts the lowest rate iirc.

quote:

Originally posted by Steeve:
Good morning

There is a possibility that I may go contracting for a period of time...I am weighing up the pros and cons about setting up my own limited company.

I have two careers. My music career, as a composer and arranger, is as a sole trader, whereas I have a limited company, Jeremy Marchant Limited (such imagination) for my business coaching and training work.

I am in no doubt that I do not need to be a limited company for the scale of what I do - and I think that would apply to you too. You might find the benefits, financial and otherwise, were not worth the effort and cost. Additionally, the way you describe it, it doesn't feel like your business is going to be the next Virgin. Neither is mine, but I do have ambitions that it will grow, probably turning into a partnership. And further, it can be helpful to have a company number and a VAT number at the bottom of the headed notepaper.

Within the IT world at least, agencies and other organisations will not deal with sole traders (e.g. seagull) or partnerships, only limited companies (e.g seagull software ltd).

Not sure why, they just do.

It also reduces your personal exposure to litigation should the worst happen.

Thanks for the replies, guys.

Well I heard today that I have the job. It is an IT contract and I start on 23rd March.

Any views on SJD Accountancy?

Not heard good things.
By the way don't bother with flat rate VAT if you think you'll spend a lot of time working away from home. I've been doing normal VAt for 15 years and it's not much extra work for quite a significant saving
Umbrella companies were very fashionable 2 or 3 years ago but they can be expensive.

Another company worth looking at is JSA. They specialise in IT contracting. I used them for a few years but I wasn't an IT contractor and as they narrowed their focus I moved on to a local accountancy firm. Think my brother still uses them.

Willy.