Limited company

If you have your own limited company (also known as a personal service company), you will be the director and shareholder of the company.

You will be fully responsible for:

• complying with all company and other statutory issues, including company law requirements to file accounts and returns to Companies House;
• the calculation and payment of VAT and corporation tax liabilities;
• payroll calculations and returns and various other statutory requirements;
• company administration including raising all company invoices, running a simple spreadsheet or accounting system to record transactions and appoint an accountant to deal with accounts, taxation and payroll matters on your behalf;
• ensuring the necessary insurances are in place to trade and protect your clients.

The MSC Bill was enacted into the Finance Act on 19th July 2007. There is uncertainty over the exemptions available for ‘Accounting Services' that means service providers who currently claim to be exempt from the legislation may be caught.

If you operate your own limited company and use the services of a provider to help with the running of the company who is found to be a provider of managed service companies, then the MSC legislation will apply to you. The bottom line is that you could face potentially crippling bills for back dated tax, penalties and interest. 

Although there are financial advantages of working in this way, an Umbrella Company would probably be more beneficial.

Umbrella Company

An umbrella company offers many of the benefits available through a limited company but without the burden of running it. The umbrella company will employ you and it will undertake the following:

• invoices your agency/client for the hours you have raised
• collects payments from your agency/client
• calculates the PAYE and National Insurance contribution and deducts and pays it to the UK authorities
• makes a net payment into your personal bank account
• complies with all company and other statutory issues, including company law requirements to file accounts and returns to Companies House;
• calculates and makes payment of VAT and corporation tax liabilities;
• runs payroll calculations and makes returns and various other statutory requirements;
• provides business insurance to meet claims made by your clients against negligence or service deficiencies.

Although you won't be as financially better off as you would have been working through your own limited company (in terms of structuring your payments in the most tax efficient way), you may be able to offset business expenses against your gross earnings.

The key point is that all the hassle and worries associated with owning and running your own limited company brought about by the latest legislation make the safe Umbrella option a very viable option for time-starved contractors.

PAYE through your Recruitment Agency

Not all agencies run a payroll for temps that they place on assignment with their clients.

The Agencies Act forbids a UK agency to make a gross payment to an individual. So, if you are working through an agency that doesn't run a payroll for its temps the options are to either have your own limited company or work through an umbrella company.

If you are working through an agency that will pay you through their payroll then your income will be subject to full PAYE and NICs. You will be unable to offset eligible business expenses against your earnings even though you have to incur them to do your job. The more agencies you work with then the more payroll contacts you will have so you're never on the correct tax code.

What this means is that you end up paying more tax than you need to. And what about the paperwork? Although you will receive a payslip when you are paid it is unlikely that you will be able to access historical information regarding your payments when you need it.

Maximising your contracting

So let's weigh up all the pros and cons.

The feedback we get from our members is that yes, it would be nice to pay as little tax as possible, but very few have the available time, or necessary skills, to run their own company compliantly.

They also don't like the thought of receiving a tax demand for unpaid tax through no fault of their own. They want a safe, happy medium where they feel in control, are valued and have all the perks of working for a company but the flexibility of being a temp. Is it too much to ask for?

Well at FPS we listened and took on board the needs of our members and can offer an affordable and reliable umbrella company to suit their requirements.

Peace of mind and a great service whilst you work with us.

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