Diary of a first time IT contractor - Deciding how to trade
I've spent some time looking at the different trading options I can adopt for my new contracting career. I can use an umbrella company, work directly for the agency as a temporary employee or form a limited company.
Since my long-term plan has always been to have people working for me, I've decided the go for a Limited Company structure. This decision was helped in no small part by the fact that every contractor I know works under their own company.
Setting up the company
Choosing a name
Choosing the name for my company is proving more difficult than I thought it would. I've decided I want my initials to be included somewhere, and I want it to be generic enough to provide a wide range of services in the future but it needs to sound right.
I've been using the company name search facility in the Company Formation area of the ContractorUK website. I've come up with several options so far, and they've been available at Companies House but when I've checked if the corresponding domain name is available I've been disappointed.
It's worth thinking about both these details at the same time. As my company is going to be trading in the IT sector, it would seem appropriate that I would have a company based email address if not a full web presence.
I've decided I'm going to use the service provided through ContractorUK. A quick search on Google for 'company formation' will bring prices ranging from £17 to over £100. I don't know what these different companies offer for the different prices; I do know that there are four documents that need to go to Companies House to legally register the company. The service I've selected registers me and I get printed copies of the documents I need.
It's Saturday afternoon and I've submitted my application. I need to wait till the next working day for it to be processed.
Monday lunchtime, I have a company number and it's all surprisingly exciting!
The prices for domain registration differ hugely when searching the internet. I've always had good service from Liquid Six hosting, so I've bought my names through them and I'm hosting my 'web presence' there as well. There isn't a lot of advice that I can offer on this subject as it really comes down to your own specific requirements.
Choosing an accountant
My paperwork arrived with my company formation documents; enclosed was a copy of Contractors Guide produced by SJD Accountancy.
I've been giving the accountant subject a lot of thought and I'm struggling to decide whether or not I really need one. A friend of mine who uses JSA wants to do as little of the administrative paperwork as possible, so he pays them to do as much as they legally can.
Another friend uses a small, local company who let him do as much or as little as he wants. I want to know exactly what is going on with my company, and the company's money so I've made an appointment with the small local firm.
I've met with my new accountant, she's happy for me to do as much as I want to feel in control and will be on hand to ensure don't make any costly mistakes. My first year of accountancy fees should be between £800 and £1200; she has placed a £1200 cap on the total cost for this first year so I'm pleased the price can't spiral uncontrollably.
Opening a bank account
I saw my bank manager this morning. I bank with a High Street bank for my personal accounts and thought they would be a good starting point for my business account. I can see the positives for having one bank knowing you in both a personal and business banking capacity, but once I looked past the end of the introductory rates and special offers they weren't particularly impressive. Looking at the other High Street banks, they all seem to be much the same.
I've spoken to my contractor friends, without exception they all use Cater Allen. It turns out that you can apply for a Cater Allen Private Business Account through ContractorUK .
The benefits of using Cater Allen have the added plus of not being time limited unlike my bank. Most importantly, the people I've spoken too universally have positive things to say about the bank.
The paper work has been submitted to CUK for forwarding to Cater Allen; it seems that I can't apply directly. I followed it up with an email and I'm told that the lead time is around 10 working days if all is satisfactory with the application.
It's been 7 days since I applied for the bank account and I've just had my welcome pack through the post. It effectively amounts to a letter with the account number and sort code on it, but I'm very pleased to see it.
Everything is coming together now.
Registering for VAT
I've decided to register for VAT from the outset, until you get to a certain threshold you're not actually required to. I've made this decision rightly or wrongly based on the future! As I said earlier, my intention is to turn my limited company into a full services company with employees. With that in mind and my optimism about first year income, it seems sensible to start as I mean to go on.
Registering has proven to be really easy using the HMRC website. Getting a username and password isn't made particularly easy, and they aren't exactly user friendly, but once you have them the application form is a fairly simple process.
It's 10 days since I applied for VAT registration and I received a plain looking envelope in the post with my VAT registration number.
Registering for PAYE
My accountant told me to wait until I was going to be having my first invoice paid before registering for PAYE. I've gone against this advice since I've been registering for TAX and signing up to various Business Link websites I decided to make the call to HMRC to register for PAYE.
The only issue with registering for PAYE before it's needed is being required to make the nil payments. I've decided that being fully prepared is more important that the inconvenience of having to fill in a small amount of paper work.
I now have all the PAYE information for paying myself.
All I need to do now is start the contract and start invoicing!