New to contracting – first timer’s guide

Contracting for the first time can be an exciting new challenge and adventure in your career. There are advantages to contracting within every industry sector, including more significant opportunities for skill development, increased flexibility and financial rewards. As you develop your contracting career, you will find that a broader range of contract work becomes available, and you will acquire skills and experience working with various clients.

Contracting is different from permanent employment, as you can choose how you will be paid. As a contractor, you must set up your business so that you remain compliant with IR35 legislation and tax regulations set out by HMRC. Whether setting up a limited company or using an umbrella company for your payroll, you must operate compliantly and legally.

Your payroll options as a contractor

When you move to contracting, you have several different options. The two main options are contracting via a limited company or working through an umbrella company.

Umbrella company

Working through an umbrella company is the easiest way to get paid as a contractor working on temporary assignments. Registering with an umbrella company is fast and straightforward, and once you sign up with an umbrella company, you become its employee. Through this payroll option, there is no need to set up your own business or handle any administration besides submitting timesheets. Your umbrella payroll provider will handle all your tax obligations, including income tax and National Insurance. With this option, you also don’t have to worry about IR35 legislation as you are taxed at source and, therefore, comply with the legislation.

Please click here to learn more about Churchill Knight Umbrella and the benefits available to all of our employees.

Limited company

Setting up a limited company as a contractor means you become a business’s director and shareholder. You can pay yourself through a combination of salary and dividends. Tax rates for dividends are lower and are not subject to National Insurance, which is one reason you can see a higher take-home pay through a limited company.

Limited companies require documents to be filed and paperwork to be done fairly regularly. If you choose this option, you must have a business bank account. Contracting via a limited company can be very rewarding, as clients and agencies tend to see registered businesses as more trustworthy. Having your own limited company also offers more growth opportunities.

The best option depends on your contract terms, length, rate, industry, and, ultimately, your IR35 status. If you are inside IR35, an umbrella company may be your best option. However, if you are outside IR35, the benefits of a limited company far outweigh those of a limited company.

Our sister company, Churchill Knight & Associates Ltd, offers a compliant accountancy service for contractors outside IR35; please click here to learn more.

Always choose a compliant umbrella company

With thousands of umbrella companies in the UK, there are plenty of providers to choose from. It is important that you only consider and use compliant providers. To make your decision easier, we highly recommend only using umbrella companies accredited by the Freelancer and Contractor Services Association (FCSA) and SafeRec.

Powered by AI, SafeRec is a leading compliance and technology company that audits umbrella companies to ensure there are no signs of malpractice. Every payslip generated by a SafeRec Certified umbrella company is audited at source, in real-time, and all payments are individually cross-referenced with RTI sent to HMRC. If SafeRec finds any signs of malpractice or discrepancies regarding how the umbrella company pays the contractor, it will be flagged in the audit report sent to the individual. A list of SafeRec Certified umbrella companies is available on SafeRec’s website.

The FCSA is a professional body dedicated to ensuring the supply chain of temporary workers is compliant with UK tax law. For an umbrella company to be accredited by the FCSA, they must prove all processes are above board and operating compliantly and ethically. A list of FCSA-accredited umbrella companies is available on the FCSA’s website.

By using a SafeRec Certified or FCSA-accredited umbrella company, you can operate with complete peace of mind that your umbrella company is compliant, and you will be paid according to UK tax law.

Why use Churchill Knight Umbrella?

Churchill Knight Umbrella is a SafeRec certified, FCSA accredited, and leading PAYE umbrella company. Since we launched in 2017, we have quickly become one of the most popular umbrella companies in the UK and process payroll for thousands of contractors and freelancers each week. When you register with Churchill Knight Umbrella, you can benefit from:

Discover your earning potential

Request a free, tailored take-home pay calculation

Click here

Check out our newest articles