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Orange Icon FAQs

Taxation

A typical contractor company can expect to pay Corporation Tax on their profits at 20% as well as VAT at whatever flat rate is established. 

Corporation tax is payable nine months and one day after the financial year end. VAT is paid quarterly, one month and seven days after the VAT quarter has ended.

If you are liable to higher rate tax, this will be payable on 31st January.

In all but the very narrowest of circumstances, the tax and NI cost on the benefit-in-kind leads us to advise that you’d be better buying the car privately and claiming mileage at the approved rates. However, you may wish to consider the guideline posted here. 

Its fairly negligible whether you should pay pension contributions personally or through the company although remember that if you pay personally the tax relief is restricted to the same level as your salary, so typically the maximum you would be able to contribute would be just over £7,000. If you contribute through your company then the company gets full tax relief up to £50,000 per annum.

No. The settlements legislation at s660 of the Taxes Act, S660 (B5) which says that gifts from parents which generate income of more than £100 per year (per parent per child) will be taxed onto the parent.

Switching from umbrella to limited

Its a fairly straightforward process but there is a fair bit of paperwork required. We can take care of the most of it for you so its pretty painless. You’ll need to set up a limited company and, of course, notify your agency or client to stop paying the umbrella company and start paying your company.

Some umbrella companies require up to a month’s notice so its worthwhile checking with them and using this notice period to get everything in place. The new limited company can normally be up an running within 24 hours but the bank account can take a while to open up. But remember, you only need to have the bank account in place by the time you are due to be paid your first invoice – which could be another month. 

Expenses

Provided your engagement or contract falls within  the 24-month rule, you can claim all expenses associated with getting to and from your place of work. This would include train, bus or air fairs where appropriate. You can also claim a mileage allowance of 45ppm for the first 10,000 miles and 20ppm thereafter.

Meals are not normally allowable but if you are away from home at a temporary site or workplace for more than five hours you can claim £5 per day for meals and £10 per day if you are away for more than ten hours. This is not a round sum allowance and should only be claimed if the expense was actually incurred.

Yes. If you are away from home overnight in the course of your work or business, you can claim £5 per night if you are in the UK and £10 per night if you are overseas.

Yes. If you are a basic rate taxpayer the company can pay up to £55 per week in childcare costs. This drops to £28 per week if you are a higher rate taxpayer. The child must be under sixteen and the company should pay the childcare provider directly. Detailed guidance on this can be found here.

Yes. But see our guide for more information.

Insurance

Its unlikely you’ll be legally required to get any insurance but you may be contractually obliged by your client or agency. Check your contract. Typically, you will require a level of Professional Indemnity Insurance as well as Employer’s and Public Liability Insurance.

Again, this is entirely down to your attitude to risk. We recommend that you take out tax enquiry insurance (which covers your professional fees in the event of a tax enquiry) and you may want to consider taking out a Relevant Life Policy on the directors.

IR35

The simple thing is to avoid appearing like an employee of your company. In practice this means ensuring that your client does not exert significant direction and control over how you do you work. The right to send a substitute would also be helpful.

It is important that your contract is what is known as “IR35 friendly”. Most agencies have IR35 friendly contracts but we suggest you get any contract reviewed by an expert. Remember, that the contract is less important than the actual working practices, so it is important that the contract reflects the working practices.

Managing your limited company

Its important to remember that the company is not you and the company’s assets are not yours. As a director you have a responsibility to ensure that the company is at all times in a position to meet is obligations. Therefore you are required to retain a certain amount to provide for corporation tax, VAT etc. Our monthly summaries show you exactly how much you need to retain in the company.

Nope. Paperwork should take no more than around 15 – 20 minutes per month. This includes sending invoices, recording expenses and making payments to HM Revenue and Customs, which isn’t much more than if you were to use an umbrella company. We provide you with all the spreadsheets you need.

You can choose whichever bank you like and many have good offers. Santander for example offer free banking for life. However, we find that its normally best to open the company account with the bank you use personally. This certainly makes the account opening process more straightforward. 

Generally, you need to keep your accounting records for 6 years after your year end after which they can be destroyed.

No. The settlements legislation at s660 of the Taxes Act, S660 (B5) which says that gifts from parents which generate income of more than £100 per year (per parent per child) will be taxed onto the parent.

No. The NMW does not apply to company directors. Although many accountants suggest you do apply this, there is no legal or tax-planning reason to do so and it is likely to be costing you a significant amount in NIC’s

VAT

Not necessarily. The VAT registration threshold is currently £73,000 so until you reach that level VAT registration is voluntary. 

In most cases the answer would be YES. Being registered for VAT allows you to take advantage of the VAT Flat Rate Scheme which could increase your income by as much as 5%.

The VAT flat rate scheme (VFRS) is a simplification scheme whereby you pay a flat rate on your turnover as opposed to reclaiming the VAT on expenses. Generally, a contractor will benefit from being on the scheme as they can charge the client VAT at 20% but only pay VAT to HMRC at – typically – 14.5%. So, you invoice for £1,000 plus VAT and the client will pay you £1,200. You have to pay 14.5% of £1,200 which is £174 so you gain £26 per £1,000. For nothing. Free money, you could say. 

If  you are on the flat rate scheme (VFRS) then generally you cannot claim the VAT incurred on your costs but if you spend over £2,000 on large value items of plant and equipment, including computers, then you can claim the VAT back on your tax return. You can aggregate capital expenditure to take the total spend over £2,000 but it needs be a single capital spend on the same invoice from same supplier. EG: You could buy a high-spec laptop for £1,5000 plus a printer at £200, software at £250 and a case at £100 taking the total spend to £2,100. If this was all in a single purchase from the same supplier you would then be able to recover the VAT. However, if you bought the items separately, then no VAT would be recoverable.

Broome Affinity – How we work

Pretty much everything:

  • A dedicated client manager
  • All aspects of company tax and accountancy advice; including IR35
  • Provision of a comprehensive spreadsheet to help with the recording of trading activities and management controls of the company
  • Preparation of weekly/monthly pay slips for one fee earning director and one additional non fee earning employee
  • Preparation of quarterly VAT returns
  • Advice on joining the Flat Rate Scheme for VAT
  • Dividend administration
  • Support for all secretarial matters
  • Dealing with all correspondence from HMRC and Companies House
  • Preparation of mortgage / tenancy references
  • Preparation of annual PAYE returns Preparation and submission of annual accounts
  • Preparation and submission of corporation tax computations and corporation tax returns.
  • We will prepare the self assessment tax return for the director free of charge on the basis that their income is derived mainly from their limited company. If their tax affairs are more complex a small fee maybe payable.

Our standard fee is £99 per month.

Nope. We are confident that our service is so good, we don’t need to tie you in.

Difficult to say. But we recognise  that as a contractor or freelancer you are always “on the clock” so we don’t expect to have regular meetings with you which can be time consuming and costly for everyone involved. We prefer to communicate by email and telephone although we would normally meet with a new client during the start-up phase and in most cases no further meetings will be necessary, although we are always available.