As a small business site, we have a wealth of tax guide which detail what a limited company’s tax obligations are, how to find an accountant and deal with current tax issues. We have also produced an overview of things you should consider below:
We’d highly recommend hiring a contractor-specific accountant before embarking on your first contract. They will be able to provide tailored advice to you on how best to withdraw money from your company (if you’ve gone down the limited company route as most contractors tend to do).
Our widely-read tips for choosing an accountant is worth reading, as the same tips apply for contractor-specific accountants as they would do to any small business service provider.
If you are a limited company contractor (not caught by IR35), you will typically take a small salary and the remained of your funds as dividends.
If you are a limited company contractor caught by the IR35 rules, you will receive a ‘deemed salary’ following deductions for a flat rate 5% administration allowance.
Each year, you will also need to fill in a self-assessment return, and pay ‘payments on account’ for the following year if this applies.
If you work via an umbrella company, your tax affairs are far simpler as you will operated under the PAYE conditions of the umbrella scheme. You will receive a salary (with income tax and NICs deducted at source).
When working via an agency, or direct, you will invoice the client/agency each week/month. If you are VAT registered (if your income is likely to exceed £77k p.a in the 2012/13 tax year), you will invoice for your contract rate + VAT.
Your accountant will tell you what your National Insurance, VAT and PAYE liabilities are at regular intervals, and when/how to settle these tax liabilities with HMRC.