To follow on from my first post on Dynamics Nav Contracting in the United Kingdom, here are some options a new contractor might want to consider putting in place before accepting a Contract.
To contract in the UK there are a couple of ways to work, if we expect to expand and partner or take on other contractors or employees then we would need to setup a company to invoice our clients, but we are only looking at a sole trading.
If we have a contract through an agency then they would want to only deal with a registered company or an umbrella company, some agencies have their own umbrella companies they prefer to work with, but choose a company and sticking with the same one will work best, I have been paid through Giant Group since starting contracting.
As an employee we would have been used to being paid on a monthly basis, this does not need to be the case when contracting, if we are working through an agency then they will be charging £50 – £100 a day on top of our rate so we do not accept “Pay when Paid”, if we are working direct then our client could be saving £50 – £100 a day, asking for Weekly or Twice monthly payment cycles with strict seven day settlement terms is not unreasonable.
The client or agency may not like the payment terms but remember we are the vendors, if they want us to provide consultancy services then they need to accept our payment terms, this might seem a little harsh, but the reseller would often take 50% up-front, or a pre-payment for an MIS bank of days from their clients, if they are not happy with our contracted services they should easy know within a week or two, and our risk of not being paid becomes reduced.
Reproduced with permission from Giant Group, I have used Giant Group since 2007
Contractor Trading and Employment Options
So what are the options available for you within the temporary employment industry? Temporary workers can choose between agency PAYE, joining an umbrella company, or being a director and shareholder of their own limited company, often referred to as a personal service company or PSC.
Here’s a brief overview of each option available to you as a contractor.
How does an umbrella company work? You become a direct employee of the umbrella company and undertake various roles to suit your experience. As your employer, the umbrella company also provides you with all your employment benefits and protection, plus the reimbursement of approved business expenses.
But not all umbrellas are the same. Giant Group have been independently voted Best Umbrella Company by readers of Contractor UK four times.
The basic option. Agency PAYE is where the agency pays you after deducting PAYE. You do not become a permanent employee and so do not benefit from the protection and benefits this provides. Generally, agencies do not reimburse any of your business expenses, therefore your remuneration package will not be enhanced. Not all recruitment agencies offer PAYE.
With this option, you set up a limited company and become the director and shareholder. You have the statutory responsibility as the director, the administrative burden of operating the company, IR35 legislation (whether you can withdraw money via a dividend), and the financial risk of anti-avoidance legislation (managed service company). Best advice suggests that this option should only be considered by highly paid workers contracting for the long term.
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