What are your options?

Your options explained

Your options explained

If you are a Contractor/Freelancer/Temporary Worker working in the UK then you have 4 main trading options that are easily available to you:

To decide which option is the best route to follow to fit in with your personal circumstances have a look at all the information below together with all of the contractor resources we have made available in the sections – Useful Guides, Jargon Buster and FAQs.

Recruitment Agency PAYE

Most people find work these days through Recruitment Agencies and some Recruitment Agencies still process the payroll of workers themselves.  Whilst they pay you and sort out your Tax and National Insurance contributions on a Pay As You Earn (PAYE) basis, it is important to understand what you don’t get from them. The Agency doesn’t employ you so therefore you do not get the benefit of full employment rights such as Statutory Sick Pay (SSP) etc.

Some Agencies only work with a small number of Clients so in order to keep in regular work you may end up having to change Agency frequently to get new assignments. The Agency will also pay you at a lower hourly/daily rate to protect their profitability on each assignment as they incur additional employment costs by processing your payroll directly.

Good option if:

Not a good option if:

PAYE Umbrella Company

An Umbrella Company, such as your umbrella enables you to get paid with full employments rights under a PAYE scheme with the added benefit of being able to offset the expenses you incur whilst on assignment against your Tax and NI costs to increase the amount of money you take home. All Umbrella Companies Are Equal in the way that they operate apart from the fees that they charge and the quality of the work that they do. Some Umbrella Companies generate more money for themselves by charging extra to process expenses, make same day payments or carry out any additional admin on your behalf.

When you’re on the umbrella company’s payroll, your pay is determined by your specific assignment, and the umbrella company will invoice, chase and retrieve the money due for the hours/days you have worked in any given period. A good umbrella company will also provide a full contract of employment, HR support, guaranteed hours of work, invoicing and timesheet management and be fully compliant with all Tax and Employment Legislation.

Good option if:

Not a good option if:

Limited Company (PSC)

Setting up a limited company is the most popular option for contractors, because it’s often the most profitable. For example, you may pay significantly less in National Insurance contributions.

Limited liability Companies are their own individual legal entities, which simply means for a contractor that your personal finances and company finances should be treated as two separate things.  As a contractor, therefore, you will not be personally responsible for any company debts (although as a company director you might be asked to give a personal guarantee for securing any borrowing such as bank loans etc).

However, it does come hand in hand with added responsibility; you’ll be running your own business, which means setting up a company, arranging your own insurance, finding an accountant, taking responsibility for your accounts, checking your IR35 status and making sure you’re paying the right tax.

Carefully choosing a specialist Contractor Accountant such as your psc will enable you to have the vast majority of responsibility taken off your shoulders and certainly nearly all of the paperwork off your desk.

Contractors often test the water by going with an umbrella company first, then move on to setting up their own limited company if they decide that contracting is their long-term career choice.

Good option if:

Not a good option if:

Self-Employed (Sole Trader)

Working as a sole trader is the simplest form of contracting, however, it is arguably the riskiest also. It’s the simplest because all you have to do is register as self-employed with HMRC and you can then receive all of your payments gross of Tax and NI – don’t forget that you will need to put money aside to pay this at the end of the tax year! It’s the riskiest though because, unlike the Limited Company option, you are personally liable for any debts that your business runs up, including Tax and NI, meaning your home or other assets could be at risk if things go wrong.

Working as a sole trader means you will need to complete a self assessment tax return every year in order to calculate the exact amount of Tax and NI that you owe to HMRC but, as with running a limited company, a good Small Business Accountant like your sole trader specialising in accounting for self-employed contractors will be able to handle all of this for you.

As ALL expenses relate to the work that you do then being a sole trader enables you to offset a larger amount against Tax and NI than you would be able to through the Umbrella solution. Although you are able to reduce your NI bill with expenses as a sole trader you are still better off with a limited company when it comes to NI payments because by paying yourself a dividend rather than salary your money is not subject to NI.

There is an employment risk involved for a recruitment agency engaging with you directly as a sole trader; so unless you use the services of your sole trader to act as your intermediary accountant then you may have to find most of your work yourself.

Good choice if:

Not so good if:

Self-Employed (Construction Industry Scheme)

If you’re a self-employed construction worker then you’ll probably know all about the Construction Industry Scheme (CIS). The CIS is an efficient way for construction workers to account for their tax as a sole trader with gross status or by paying tax as you go, on account, at either 20% or 30% depending on your tax status with HMRC.

By completing a Self Assessment Tax Return at year end you are almost certain to be able to claim a tax rebate. The good news is that a registered scheme provider such as your cis can take care of everything for you regardless of where you are contracting in the UK at any moment in time.

Good choice if:

Not so good if:

Our expertise means it’s your choice.  If you want to know more, it’s all available for you on our website, right here.  Or pick up the phone, we’re nice.

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