Merit in the community

New Contractor Information:

Payroll Services:

There may be times when you need to choose your own Agency for a contract or need to nominate an agency to provide a payroll service for yourself or for your colleagues. Merit are often recommended for this purpose, which has now become a specific service we offer.

We will be pleased to hear from you whenever this service might be of interest, whether it involves a Limited Company or PAYE contracting.

• Weekly, Bi-weekly, or Monthly payment by BACS and CHAPS
• Acceptance of authorised timesheets by post, fax, email, Msheet, third party software.
• Direct contact with our Payroll Team
• First time contractors advice
• Limited Company advice
• A full PAYE service

How to become a freelance Independent Contractor:

When you start your business one of the first decisions you will need to make is which legal structure to go for. There are several different kinds, including limited liability partnerships and social enterprises. But for most people the choice comes down to staying self-employed or setting up a limited company. Here is an overview of the issues to consider and the implications.

Tax and National Insurance:

When you are a self-employed sole trader, people are doing business with you. When you have a limited company, it is a separate legal entity with its own financial affairs and that has an effect on tax. If you remain self-employed, business expenses will be deducted from your revenue, and you will be taxed on the profit you make. You declare this in your annual tax return, and must also pay National Insurance contributions. On a monthly basis you will take drawings from your business to live on.

With a limited company, you can’t just take money out of the business as it belongs to the company, not you (this is the case even if you own 100% of the company). The only way to get money out is to be an employee and take a salary, or take the profits out (known as taking a dividend). The company can also repay money you have loaned it.

If you work independently there are some tax advatnages to having a limited company, although these are being removed fast. Your accountant will be able to advise on the most tax advantageous method to suit your circumstances.

Costs and paperwork:

Generally speaking, it costs a little more and involves more administration running a limited company. Because it is an independent legal entity, there are certain paperwork requirements, such as sending annual accounts to Companies House. This must be done even if the company is not currently trading, or you will face a fine. Ultimately you could be banned from being a company director if you don’t fulfil your responsibilities properly. Incidentally, all company information will be in the public domain for anyone to see. This is not the case for sole traders, whose tax affairs stay private. Most businesses need the help of an accountant to prepare annual accounts and file returns. As a self-employed person you just fill out an annual tax return. While it is sensible to use an accountant for this, it is something you can do yourself or with the help of a bookkeeper.

Marketing and Credibility:

Depending on who you are selling to, you may find it more advantageous to your marketing to run a limited company. Even though as a self-employed person you can have employees and pay VAT, there is a perception that being a sole trader means your business is very small. Having a limited company implies being larger, which can be a good marketing method.

Employees:

Being a sole trader won’t stop you from hiring employees. You can hire employees the same as a limited company can. Just remember that the biggest difference between being self-employed and having a limited company is the liability. If something was to go wrong with an employee and it went to an employment tribunal, it would be you personally in the firing line, not just your company.

Your liability if it all goes wrong:

Which brings us onto the main differences between the two structures: your legal liability. These are mostly financial. A limited company is so named because it has limited liability. As a director, if the business goes wrong, you will only lose what you have put into it. There is little chance that people who are owed money by the failed business can come after your personal assets (unless, of course, you have secured loans on them).

As a self-employed person the liability sits with you personally. If your business runs out of your money it is your problem, and you could lose some of your personal financial assets.

This key difference is the main reason for switching from sole trader status. When it’s just you on your own working from home, your financial liabilities are low. As you start to take on premises and employees the risks become greater, and it may make more sense to shield yourself financially and legally.

Of course remember to get professional advice from a qualified person before taking any action. Don’t rely purely on information contained in this article.