Article by Turner & Co

If you're a contractor setting up a company can be benefical from a tax and national insurance perspective but this approach isn't necessarily right for everyone. 

There are costs involved in setting up and administering a company so, before you do, it’s important to make sure that setting up a company is the right approach.

A key consideration is whether, working as a contractor, you would be considered an employee by HMRC which would mean that you would be in breach of a tax avoidance rule, IR35 and subject to paying tax and national insurance in line with PAYE requirements of other employees in a company. HMRC has specialist teams investigating possible breaches with penalties of up to 100% of the tax owed so it’s important to get this right.

Some of the key considerations include:

• The extent of the control an employer has over an employee eg
  • Whether the employer can dictate the hours worked or where the employee works (eg whether they have to be in a particular office at particular times).
  • Whether the employer can dictate how a job is done – the tasks required, the order in which they are done or the way they are done.
  • Whether the employer provides the equipment to the employee.
  • The extent of the control an employee has over how they work eg
    • Whether the employee has to do the work themselves or whether they can find someone else with the same specialist skills.
    • Whether the employee can work for other clients at the same time.
    • Whether the employee is entitled to sick pay or holiday pay.
    • Whether the employee invoices by work completed against agreed milestones or by time (eg weekly / monthly).
    • Whether the employee has to rectify any mistakes in their own time.

If in doubt whether setting up a company is the right thing to do seek expert advice. Turner & Co accountants can help you evaluate the work that you do, or are likely to do, and can advise whether you would be considered an employee or contractor. If it would be beneficial to you to set up a company Turner & Co can also help you set up a company and ensure you comply with the necessary requirements.

Find out more about Turner & Co.