6 simple steps to setting up your company as a contractorJuly 7, 2021
So, you've decided to make the exciting leap from employee to contractor. You've secured your first contract and celebrated accordingly, but now's the time to get everything set up before you sign on the dotted line.
The process of setting up as a contractor can be daunting. If you've always worked as an employee, you've likely never have needed to worry about the admin things like accounting, insurance or setting up a company.
We've been contractors before and we know first-hand how tricky getting set up can be. That's why we've put together this handy guide to help simplify it all for you.
Setting up your company
Choose your company name
Set yourself up as Managing Director
Directors have responsibilities such as paying Corporations Tax and keeping company records, you can familiarise yourself with the full list here. You can also check the records you'll need to keep here.
Register your company
You'll need to register an official address and choose an SIC code which identifies the products or services your company provides. You can check the rules for a company address here and choose the correct SIC code here. To register your company with Companies House you'll need to follow this link.
Opening a business bank account
Opening a business bank account can often be more complicated and time-consuming than you'd expect. Additionally, the process can differ greatly between banks. In order to register for a business bank account you'll need the following:
- Proof of ID (passport, photo driving license or national ID card)
- Proof of address (utility bill, council tax statement, recent bank statement).
- Full business address (including postcode)
- Companies House registration number (for limited companies and partnerships)
- Estimated annual turnover.
It's also important to choose a bank that suits your business needs. Top tip: we'd recommend checking out Money who have put together a great comparison of business banking products.
Registering for VAT
HMRC requires you to register for VAT if your VAT taxable turnover goes above £85,000, or if you know that it will. Your VAT taxable turnover is the total of everything sold that is not VAT exempt. You can also register voluntarily if your business turnover is below £85,000. You must pay HMRC any VAT you owe from the date they register you.
Most businesses can register for VAT online here.
IR35 is comprised of two sets of tax legislation designed to combat tax avoidance by contractors and the companies hiring them. It's intended for contractors who are supplying their services to clients via an intermediary, such as a limited company, but who would for all intents and purposes be an employee if the intermediary wasn't being used.
If you are deemed by HMRC to be working as an employee under IR35 you'll have to pay income tax and National Insurance Contributions, as if you were employed.
The good news is that as a contractor, you aren't responsible for determining your IR35 status. That responsibility falls to the company hiring you.
It's important to insure yourself as a contractor. There are two popular types of insurance cover for contractors: Professional Indemnity Insurance, which covers you in the event that you give faulty advice that might cause financial loss to a client, and Public Liability Insurance, which covers you if someone becomes injured or their property becomes damaged because of your business.
You can compare business insurance services here.
Last but not least, accounting is regularly a pet frustration for contractors. When it comes to making sure you're financially compliant, you can either go it alone and navigate the complex accounting system yourself – which is often confusing, time consuming and opaque – or you can hire an accountant to do it for you at considerable cost. As of recently, however, there's a third option: Ember is the first platform to completely automate the accounting process for contractors and SME's. It's simple and intuitive software that shows you only what you need to see – like how much tax you owe and when it needs to be paid – and does all the complicated stuff in the background. Expenses will be automatically categorised and your VAT returns, taken care of. It's seriously great!
Sign up today and get contracting.
It's a big bad world out there for contractors, but we're here to light the way, and lighten the load.