Get Free Advice from an Accountant
Book a free 30 minute call with an accountant. We'll help walk through setting up your business, switching accountant or any of your tax queries. All our accounting packages come with a free 30 day trial.
You can pay an independent contractor by an hourly or daily rate, or by the project through the contractor’s preferred payment method. You won’t need to withhold taxes, as they are responsible for paying their own income and National Insurance contributions.
Download our Ultimate Expenses Guide
Download our Ultimate Expenses Guide
Read More Guides below:
What is subcontracting?
As an independent contractor, there may come a point in time where you need to consider subcontracting-you might decide to take on work as a subcontractor, or hire a subcontractor for your projects.
Whichever option you're exploring, how do you decide if the benefits truly outweigh the cons? And are there important tips you need to keep in mind?
How do I pay a Limited Company Pension?
If you're operating as a sole trader, you can contribute to a personal pension scheme.
If you're a limited company director, you can make pension contributions as an individual (as an employee), as well as through your company (as an employer). For the latter option, your pension contributions are paid directly from your business bank account.
How do I pay myself as a contractor?
A contractor working through their own limited company can pay themselves through a couple of ways such as paying a salary and paying dividends. There are a few factors that need to be considered when deciding the best way to go about this.
For example, when operating inside IR35, contractors will be restricted to paying themselves a salary however when operating outside IR35 the doors are opened to maximise tax efficiencies.
How to Become a Contractor
So, you're thinking of becoming a contractor.
There's probably one of three reasons driving this:
You've received a Job Offer
You've just received a job offer, and now need to decide on whether to set up a limited company, umbrella company or become a sole trader (or you may not have the choice in deciding).
You're in the right place.
This guide will walk you through the best company structure for you, accounting support, VAT, business services you need to consider and finding new opportunities.
You want to increase your pay
You'd like to increase your pay by switching from permanent roles to interim/ contractor roles.
Contracting can be very lucrative.
You'll need to be comfortable with a certain level of risk (short notice periods), increased monthly admin (as a Limited Company) and less benefits than being an employee (paid leave, sick days).
However, you'll earn more, get greater flexibility and hopefully grow a consulting business.
Getting multiple requests for your services? Amazing.
Setting yourself up as a contractor through a Limited Company means you can start expanding your client base rapidly and work on different projects a few days a week.
You can still set this up as a current PAYE employee of a company, and this can be a great stepping stone to launching your own business.
Let's talk about the right business structure for you.
Guide to employing or hiring contractors
You have an important project at hand, and you require a contractor's specialist knowledge to fill in the skill gap in your team. You're ready to hire-except that you're unfamiliar with the hiring process.
If this is your first time hiring a contractor, our article will guide you through the essentials.
We'll cover the following:
- Sourcing for contractors
- Assessing contractor CVs
- Interviewing a contractor
- Contract terms
- Terminating a contract
What are the advantages of contracting?
The advantages of contracting are:
- Flexibility: Contractors have a lot more control over their work life often deciding when they work, where they work and how they work
- Increased earnings: Contractors are often paid more due to their skillset and the flexible nature of their working relationships. Additionally, contractors who operate through their own limited company can benefit from tax efficiencies.
- Greater development: Often working with multiple clients throughout their career, contractors are exposed to a lot of opportunities to develop their skills and build on their experience in their area of expertise.
How to calculate holiday pay for overtime and commission payments
"What are the rules around holiday pay?" is a common question often asked by employers.
It can be confusing, as regulatory changes mean that employers now need to consider additional elements when working out an employee's holiday pay.
Simply put, employers now need to include regular commission and regular overtime payments when calculating an employee's or worker's holiday pay.
This is explained in further detail below:
Do I need to be set up as an Employee in my new Company?
As a limited company director, you're classed as an office holder. You aren't automatically an employee at your company-even if you're the sole director and only person working in the business.
It's isn't mandatory to be set up as an employee at your new company. However, there are benefits to doing so if you aren't employed elsewhere, as you'll be able to take advantage of your tax free allowances.
7 ways to improve your monthly cash flow
Healthy cash flow is one of the most powerful weapons in a small company's arsenal.
In fact, cash on hand can be the deciding factor in a customer's choice to buy from your company or a competitor.
For instance, imagine landing the large order of your dreams, but losing the business to a competitor because you lack the capital necessary to prepay for the products needed to fill the customer's order. Fortunately, you can avoid this pitfall by making a few simple changes in your operations.
Below is a look at seven ways to grow your monthly cash flow by reducing expenses.
How do I hire a new employee?
To hire a new employee, you need to:
- Check if your business is ready to hire a new staff
- Kickstart your recruitment efforts. You can recruit employees on your own, or by using a recruitment agency.
- Check that the candidate has the right to work in the UK
- Find out if they require a DBS check
- Check if you need to enrol the employee into a workplace pension scheme. Here's a guide for first-time employers. If you've already hired employees previously, refer to this resource instead.
- Before carrying out salary negotiations, you need to check the National Minimum Wage for different ages and types of jobs. You'll also need to finalise the employment contract, and provide a written statement of employment particulars within 2 months of the start of employment.
- Notify HMRC that you've hired a new employee. Make sure you're aware of the steps you need to take when you start paying your employee.
If you're hiring staff for the first time, refer to HMRC's guide on the steps you need to take.
Contractors - should I be paying myself salary and dividends?
As a contractor, how you pay yourself will vary depending on whether your contract is subject to IR35.
- Contract subject to IR35 (inside): Salary
- Contract not subject to IR35 (outside): Salary, dividends + reimbursing any expenses you have paid for out of your own pocket
We've provided a more detailed explanation in our Forma Help Center resource.
When do I have to pay National Insurance?
For employers, the deadline for paying National Insurance will vary depending on the amount payable.
If the amount payable exceeds £1,500, the deadline will fall on the 22nd of the month (or the 19th if payment is made by post).
If the amount payable falls below £1,500, you can make quarterly payments instead of monthly ones. The quarters end on 5 July, 5 October, 5 January and 5 April, and payments are due on the 22nd of the month (or 19th is payment is made by post). For example, for the quarter ending 5 July, the payment must be made by 22 July.
How do I pay national insurance?
How you pay your National Insurance contributions depends on your employment status.
If you're an employee, your National Insurance contributions are deducted from your wages before you receive your salary. Your contributions are reflected in your payslip.
If you're a limited company director, you may also be an employee (at your own company). As such, you pay Class 1 National Insurance through your PAYE payroll.
If you're self-employed, you pay Class 2 and Class 4 National Insurance depending on your profits. The majority of self-employed workers pay National Insurance through Self Assessment.
If you're employed and self-employed, your Class 1 National Insurance will be deducted through your wages. You may also need to pay Class 2 and Class 4 National Insurance depending on your self-employed profits.
Is a contractor self employed?
Contractors can be self-employed, a worker or an employee. Those who are employed through an umbrella company or an agency could be considered a worker or an employee.
If a contractor is a sole trader or runs a limited company, he or she will then be considered a self-employed person.
How do I pay a Contractor?
You can pay an independent contractor by an hourly or daily rate, or by the project through the contractor's preferred payment method. You won't need to withhold taxes, as they are responsible for paying their own income and National Insurance contributions.