A Guide to contracting

More and more people are finding themselves having to turn to contracting either through redundency or organisation restructuring. It can be a daunting time as there are so many differences to being a 'normal employee' and now having to deal with your own accounts and tax affairs.

The first thing you need to decide is how will you be paid.

1 - Via an agency as PAYE

If you opt for this method of payment then you will be being employed via an agency like a 'temp.

You will be treated very similarly to an employee being paid a salary, via the agency, with tax and NI deducted by them.

You will have entitlement to full statutory rights and benefits. It can work well for very short term projects of a few weeks.

Take home pay will be around 65%

2 - Via an umbrella company as PAYE

This method is very similar the normal agency option with tax and NI being deducted at source.

With this method you can also claim some expenses which can reduce the tax and NI you pay. New legislation means that most can no longer claim for travel and subsistence meaning this is now a less popular route. You will pay the unbrella company a fee for thier services.

Can work well for very short term projects of a few months.

Take home pay will be around 70%

3 - Contract via your own limited company

This method is the most popolar method. You engage either directly with the end client or via an agency submitting invoices for your work.

You become responsible for dealing with all of your own tax with nothing being deducted at source.

There are many legitimate expenses to be claimed which can reduce the tax and NI you pay. You may need an accountant to handle everything for you to ensure you are compliant.

There is opportunity to increase your profit by using the VAT Flat Rate Scheme. More details here - Contracting VAT.

This method works best for contracts longer than a few months.

Take home pay will be around 80%

What next?

Now you have looked at the various options of how to go about contracting. Accountants traditionally only get involved with those who are using option 3.

We help by assisting with the formation of the company and it's origanal set up and ongoing by ensuring you are claiming all the expenses you legitimately can as well as ensuring you remain legal.

We also give help and guidance on an ongoing basis to ensure you are doing all you should be and not missing a trick!

Get in touch by using a contact box or by giving us a call and we can talk through the next steps.

If you would like to know more on the type of expenses you can claim as a contractor then look here - Contractor Expenses.


Call us on 01452 260 265 or leave your details and we will be in touch as soon as possible: