The best part of being a contractor is also its greatest pang. You can get paid in a number of different ways – but determining the right income structure can prove a bit of a headache. A lot of contractors elect to join umbrella companies when they first start out, essentially becoming “employees” of these organisations that keep their payments in line in a hassle-free way.
The other option is setting up a limited company – which entitles you to tax relief and a greater degree of flexibility over your finances. The red flag that stops a lot of contractors switching from umbrella to limited is the set-up process itself – which can seem a bit intimidating on paper. In reality, the changeover is often a smooth one. You just need to have the right information to hand.
Inform your umbrella company
First thing’s first – you need to let your umbrella company know that you’re going to make the switch and set up a limited company. This can be done by phone, but it’s also worth sending over an email as written proof.
Contractors bid farewell to umbrella companies every day, so it’s unlikely you will encounter any problems when you attempt to sever the tie. After your umbrella company sends over your last bits of paperwork (which you should keep hold of), you’re free to establish your new business model.
Register with Companies House
You can set up your limited company quickly and easily by visiting Companies House online and registering for a small fee. All you’ll need is a name for your company (make it general so you have some leeway if you modify your services later) and a company bank account for income/expenditure. The latter can be set up with most of the major banks in the UK.
To make it official, you’ll need to file a Memorandum of Association with Companies House – a document that explains why you’ve decided to start the business and how it will be run.
Recruit a specialist contractor accountant
Once your limited company is officially registered and you’re good to go – recruit the services of a specialist contractor accountant (like us!) as soon as possible. With these financial experts on your team, any fees/taxes/expenditure will be accounted for, ensuring your limited company gets off to the best possible start, and that any issues with the taxman are avoided.
Finances have the potential to get a little sticky during this transition, unless you have the right support. Thankfully, having contractor specialists looking after you can make the entire process stress-free and simple from start to finish. In fact, we can even take care of the company formation for you!
If you’re making the switch from an umbrella contractor agreement to a limited company, Bright Ideas Accountancy can keep everything neat and tidy, ensuring you pay the right amount of tax and receive what you’re owed. Get in touch with us today 0161 951 5306 and we can offer you some much-needed insight into the world of contractor tax.
