Is it worth trading as a company over a short period?

[lawrikeet]

Hi there,

I am new to contracting in general and plan to move to the UK to work for around 12 months. I understand that you can take home a higher pay with a company arrangement vs umbrella, but what if you only plan to be contracting for anywhere from 6 to 12 months? Is there still value in setting up a company?

Reason I'm asking is because I would like to know if a company would still outweigh some of the benefits of an umbrella in a short term contracting arrangement e.g I believe umbrellas allow me to claim relocation expenses and living expenses, and I'd also be saving money on accounting fees of say £100 a month.

Any help greatly appreciated

[Clare@InTouch]

It may be worth setting up a limited company for that period, it depends on the rate you will be earning. Generally anything over £35,000 makes it worth considering, then it's just a question of balancing out the extra admin and the extra responsibility and deciding if the profit makes it worth it in your view (or if for the sake ox £x you'd rather save the trouble and go brolly).

[malvolio]

It might help if you read the First TImer guides we keep banging on about, then you might be able to ask more intelligent questions. For example, claimable expenses are not dictated by how you are employed. You have no idea how much you don't know, so start doing some research. Mistakes can be expensive.

But to answer the question, LtdCo is the better option every time, provided you have some idea of what you are doing.

HTH

[Wanderer]

Welcome lawrikeet!

Like Clare says, it really depends on how much you will earn (which is probably a bit of an unknown to you too!). If it's going to be less than 30,000 then you might just want to opt for the quiet life and go with an umbrella, then claim for all the expenses that you can. Umbrellas with a good "dispensation" will let you claim a whole lot of stuff. You have to keep receipts and legally you can't claim for anything you don't have a valid receipt for but you don't have to send the receipts in to the umbrella, just keep them somewhere safe in case they ever ask for them. Of course it would be completely wrong to abuse this and claim for weekend trips to conferences etc around European cities which were actually just a holiday or abuse the system by taking advantage of the umbrella's dispensation by submitting claims right up to their limits, so you shouldn't do that.

If you do decide to go with a Limited, then I would suggest that you sign up with an accountant who can take care of your books on a monthly basis and tell you how much to put aside for tax etc, otherwise you could get yourself in a real pickle by the end of the year. If you are lucky enough to hit it big contracting (> 40,000 / year), then you can retain money in the company and pay it out over more than one financial year to avoid paying so much tax, especially if you will be taking some time off at the end of the 12 months. The PCG will sell you a membership and accountancy package which will do your accounts monthly and keep you on top of all the paperwork involved with a LTD co.

Make sure you get your tax sorted out when you leave, lots of people are due a refund if they don't work a full tax year.

In the olden days, people used to come here, form a LTD company and then bugger off after a year without paying any tax at all. These days, they take your finger prints so I would suggest that you make sure everything is in order before you bugger off home again.

[superuser]

IR35 Deemed Salary

you can retain money in the company and pay it out over more than one financial year

IR35 prevents this through something called a 'deemed salary' payment at the end of the financial year.