GETTING STARTED
JPC FINANCIAL LIMITED
FINANCIAL LIMITED
THE COMPLETE BUSINESS MANAGEMENT SERVICE
CONTENTS
There are 3 main routes which an individual may follow when he has decided to enter a contract:-

  1. AGENCY/UMBRELLA COMPANY EMPLOYEE - Salaried, no self-employment status of any kind, PAYE applied to all income.
  2. SELF-EMPLOYED - Sole trader, personal tax considerations, no audit requirements.
  3. LIMITED COMPANY - Full statutory compliance, accountant’s certificate required if annual turnover inexcess of £90,000 or full audit if in excess of £350,000.
AGENCY/UMBRELLA COMPANY EMPLOYEE
There is no change in status of the individual involved in this situation. The individual becomes an employee of the agency/umbrella who then place him on a contract at the premises of a third party. Generally, very few advantages or disadvantages mentioned earlier apply to agency employees, and this brochure does not attempt to outline procedures to be adopted by agency employees. Briefly, the following points are relevant to agency employees:-
  1. Earnings will be higher than those of direct employees, but will generally be approximately 12% lower than those of the other two routes above. This is because the agent will have to finance an employee ’s surcharge on the earnings of the contractor, because of the employer’s National Insurance Contributions implications.
  2. Full tax and National Insurance will be deducted from earnings at source.
  3. None of the possible tax advantages of running one’s own business will accrue to an agency employee.

N.B. You should carefully study the credentials of any umbrella company purporting to pay any of your income via dividends.

SELF-EMPLOYED
The individual registers his own business with the Inland Revenue, either as a sole proprietor or in partnership with another individual (spouse, other contractor etc.)

Generally, all the points outlined in this brochure are applicable to a contractor who decides to take the route of self-employment. In addition it can generally be stated that self-employment offers various advantages over the other two routes eg. full tax advantages, less paperwork, cheaper accountancy fees.

However, it must be emphasised that freelance contractors do not generally conform with the Inland Revenue’s definition of a self-employed person. Nor will you find that many agencies are willing to offer you a contract on a self-employed basis. The criteria is simple are you "self-employed"? Normally any individual who spends his time during normal office hours, five days per week, at the premises of one third party, using that person’s equipment, facilities and utilities and performing services on behalf of only that third party, could not be deemed to be self-employed, but would in fact be deemed to be an employee of that third party. (see also: new IR35 legislation later)

Therefore, although during your contracting career you will meet a "self-employed" contractor, you must seriously ask yourself if it is the best route for you. The only way you could possibly convince the authorities of self-employed status would be by having a number of "clients", and working on several projects at the same time.

LIMITED COMPANY
The vast majority of contractors follow the route of forming a Limited Company on commencement of their career as a contractor. The advantages and disadvantages of this route are as set out in the previous section of this brochure.

The contractor forms, or buys, a limited company, the limited company enters a contract with the agent to provide specific services to a third party, and then the limited company employs the contractor to perform services in fulfillment of its contract. The contractor generally will become a director and major shareholder of the company.

The majority of the steps outlined in this brochure assume that the contractor has opted to follow the limited company route. And it should be emphasised that while the formation of a company firmly establishes that company as a separate legal entity from its directors, the implications of Companies Act 1985 and Insolvency Act 1986 on the actions of directors should be fully understood. Once again, your chosen financial adviser will be able to fully outline your duties and responsibilities in this regard.