What’s right for you?
In order to decide you need to consider the benefits of working through a PAYE umbrella company, such as Focused, compared to setting up your own Personal Service Company (PSC), which we can also help you with. It’s your choice but our helpful team of advisors are on hand if you want to talk through your decision or ask any questions.
First let’s look at the umbrella option.
The umbrella option may be best for you if you would like:
- one employer whilst you are contracting
- quick and easy payroll
- access to a pension plan
- to build up an employment record for the purpose, for example, of mortgage applications
- the benefit of continuous employment, without setting up a limited company.
This route allows you to operate in a legally tax efficient manner, without having to worry about IR35 rules or end of year accounting responsibilities.
As a Focused employee, we do all the invoicing, chase agencies for payment, provide the necessary insurances and calculate your tax and NI deductions on a pay as you earn basis (PAYE).
You are also entitled to full employment rights including holiday pay, maternity pay and sick pay.
Let’s now see how this compares with the limited company option.
This route requires you to be the director of your own company (sometimes referred to as a Personal Service Company or PSC).
Legitimate business expenses can be reimbursed and as a shareholder and director, you can be paid via a mixture of salary and dividends.
This is a legally tax efficient way to operate as a contractor but there are considerations:
- you will be required to produce detailed annual accounts
- you must keep accurate invoicing and VAT records
- you will be responsible for submitting corporation tax returns and paying the tax owed
- you must submit an annual tax self-assessment form to declare any dividends received and pay any additional tax liabilities on these dividends
- you must ensure that you’re on the right side of the law in relation to IR35
- you must manage a separate business bank account
- to avoid penalties you need to file returns within HMRC or Companies House deadlines
- you must respond to communications from a number of authorities.
Whilst this may all sound daunting it remains a very popular option with professional contractors. This option may be right for you if you:
- tend to work on multiple projects or are a long term contractor with a number of contracts
- want to work in the most tax efficient way possible
- fall outside IR35 (we can help you determine this)
- want complete control over your finances
Focused is part of the PayStream group. Our sister company, PayStream provides accounting services to limited companies. “My PSC” can help you set up your limited company, complete all the year-end returns, run your company’s payroll and hand hold you throughout your trading in all matters relating to your accounting and tax affairs.