There is more administration involved than working through JSA’s Umbrella Company as you’ll be running your own business. As such, you’ll need to inform JSA of any transactions that take place throughout the month/quarter. However with this in mind; JSA will provide you with all the tools you’ll need, including a state of the art portal and bookkeeping system, to enable you to do this. Alternatively, JSA can take care of the bookkeeping for you with one of our higher tiered services. Please review our Service Guide to see which best suits your needs.
Forming a limited company is a common trading structure for longer term contractors based on the preferential tax treatment of dividend distributions (depending on your IR35 status) compared to employment income and the flexibility it offers the contractor. As a director and shareholder, it also allows you the opportunity for compliant tax planning, allowing you the potential of receiving more of your contracting income. If you wish to discuss this in more detail with an expert advisor, please call us on 0800 25 26 40 or 01923 257 250.
IR35 legislation was introduced in 2000 and looks at the employment status of someone working through a limited company, determining whether a particular contract falls inside the legislation (caught) or outside the legislation (not caught). If the contract falls inside, it allows HMRC to tax the worker as if they were employed by their client, essentially meaning they may not pay themselves a dividend from their company and all the income drawn will be taxed as employment income. It is important to note that in checking the IR35 status, both the contract and working practices must be reviewed and as such, it’s important you seek expert advice. At JSA, we offer a fully compliant IR35 Review service to all of our Limited Company clients.
Paying a dividend is to pay a share of the company’s profit to the company’s shareholder (usually you). The dividend value does not attract National Insurance or Lower Rate Income Tax, however, if you pay yourself into the Higher Rate Income Tax bracket, additional tax will become payable, generally at an effective rate of 25%. This is collected via your personal tax return, usually through the payments on account you will make twice a year.
NB: If your total expected income approaches or exceeds £100,000, you’ll need to speak with us in more detail, as higher effective rates of tax may apply.
Please note: The notes above and in particular the effective rates of tax quoted are those that apply until 5 April 2016. After this, the taxation of dividends is changing. Speak to us to find out how this will affect you.