Having the support of an accountant is great when you first set up a business or limited company. They are there to guide you and answer any questions you might have – and trust us; you’ll have tons when you first start out!
We spoke to one of our personal accountants, Neil Kellaway, about the top five questions he gets asked and his answers:
How do I switch from umbrella to limited?
Making the switch to limited couldn’t be easier. You just need to resign from the umbrella company by confirming your last working day before you start trading through your limited company.
The umbrella company will sort out your P45 – just pass this on to your accountant so they can use it to set up payroll through your limited company. Your next step is to open a business bank account and inform your agency/client, so they can arrange your payment to go to your limited company.
What expenses can I claim?
You can only claim expenses that are wholly and exclusively for the purpose of your business. For a detailed list of what you can claim, please click here.
When can I pay myself?
As it’s your company, you can pay yourself when you like, however most contractors set up a monthly salary and pay dividends weekly.
Don’t worry, your accountant will help you understand your tax liabilities and how expenses affect your tax bill and take home pay.
What are dividends?
Dividends are a distribution of your company’s profits to its shareholder(s). There’s a limit you can distribute before you have to pay a higher tax rate. For 2015/16 it’s £42,385 (a combination of gross salary and dividends).
How much can I take home as a contractor?
Generally speaking your take home pay will be around 70%-80% of your contract value. For example:
Through an umbrella company your take home pay will only be around 60%-70%, which is why many people decide to switch to limited. This is because going limited allows you to take a combination of salary and dividends, which are often more tax efficient. You can also register for the Flat Rate VAT scheme, which can increase your take home profit.