Company set up options and benefits
It been said before and it will no doubt be said again, there is no replacement for good advice. There is also no replacement for knowing what good advice is although this is very much a more refined skill.
It may seem like an easy thing to do – the UK is often praised for it’s ease of doing business and therefore setting up a company can actually be done in less than a day and for a few hundred pounds of Company House Fees. You could even do it yourself, then log onto Vista and hey presto you have a business card with your new company name on it. Congratulations, you are a company Director, hand out your cards to prove your new worth willy nilly. However, how much time have you put into creating a business logo, one that can be used for a website, a business card, your Twitter account and/or headed paper. Is your company name important? Well no not if you just want a company to run income and expenses through to avail of the cash flow benefits and tax planning advantages. However, if you want to run a business and one that will be around for a while, the Marketing frills that go with setting up a company maybe worth considering.
Umbrella Companies
Setting up a company isn’t the only option if you are earning money as a Contractor. There are companies who will operate your affairs through what are known as Umbrella companies. It’s not within the scope of this page to go into the variety and the complexities of such schemes. However, it is worth noting that they are set up for two reasons – the first is to reduce your tax bill and the second is to earn the entities that set up such schemes fees. The chances are that they will earn more money than you, as operators of these schemes too!
What is also worth checking out though, and the chances are that you won’t ‘get it’ at the first time of asking, is exactly how these schemes work if you are approached regarding one or are considering operating through one. Key points to investigate:
- Understand the cash flow of the scheme
- Understand how exactly you are paid from one
Whilst they have the purpose of reducing tax paid many have come under the scrutiny of HMRC as a result of aggressively pushing the boundaries of what is considered acceptable. It’s also been shown in recent cases that ignorance on the behalf of the taxpayer in terms of how these companies operated is not deemed by HMRC to be an acceptable defence should HMRC decide to challenge the benefactors of these schemes for unpaid or unpaid taxes
Whilst the initial set up of a company is often vanilla in terms of what’s required, it’s unlikely that matters will stay that way. Limited companies and how the various ways that they charge income and expenses, pay dividends etc. play out can be complex. There is a great deal more flexibility in the operation of a company than as an employee in terms of when and how payments are made to its promotors. However, that admin stuff; bookkeeping, holding AGM’s, formally recording meeting minutes, making Annual Returns, filling out Dividend coupons, keeping personal and business bank accounts separately is a headache to some. They are though the nuts and bolts of how a company works and if you don’t know how to effect these matters yourself you best find someone else that does.