3 Ways For A Contractor To Trade

How to Trade

As soon as you have successfully landed your first contract your recruitment agent will want to know how you would like to trade as a contractor.

• This is because contractors are required to have limited company status as a result of various UK and EU legislation - and you cannot be self-employed.

You will be offered a choice of two different rates for your contract. The first rate is one if you work as a PAYE employee through the recruitment agency (if your recruitment agency has this option), the second rate (which will be a higher rate) is if you trade using a limited company.

IR35

The umbrella company service is an off-the-shelf ready-made 'limited company' solution and is becoming the most popular option for contractors today.

Many thousands of contractors are using an umbrella company as their back-office function, to handle all taxes and deal with HMRC. The other option would be to set up a limited company and appoint an accountant.

Before the 'age' of the umbrella company service there wasn't an option. You had to set up and manage a limited company.

Running your own limited company is a significant responsibility, whereas there is none when using an umbrella company. 

Ever since the government introduced the IR35 law, the financial benefits of trading through your own limited company has been drastically reduced for most so as to make it not worthwhile.

More Money in your Pocket

A major benefit of using the services of an umbrella company is the higher net take home pay, even when taking into account the umbrella company's fee. You can also claim expenses through your umbrella company.

The inconvenience of an umbrella company, if you can call it an inconvenience, is having to email your timesheet to the umbrella company each month.

• Each contractor has their own set of individual circumstances and so needs to make their own judgment. Running your own limited company may suit some but the majority of contractors are put off by:
  

1. The administration burden
2. Lack of knowledge of complex laws
3. Higher costs of accountancy & legal fees

• Umbrella companies help contractors save time on paperwork, form-filling and administration, time which would be better spent finding new business or working on existing contracts.

An umbrella company is the simplest and cheapest way for contractors to get paid - whilst at the same time reducing their paperwork to an absolute minimum.