Working as a "Limited company" contractor as an electronics engineer?

[ocset]

Hi
I have been to a taxation web site and asked this…but since its about working in Electronics, it seems to be unknown..so please may I ask here?…I am  sure many here will be interested in this…

I am being offered to do an electronics engineering contract in UK (i am a UK citizen) as a "limited company".
I am currently on PAYE at a different workplace.

Supposing the contract only lasts 6 months, and then i go back to a PAYE job....how do i then close down the "limited company"?...or do i even need to?

If the "limited company" contract does end after 6 months, and i then go back to PAYE in another job, then do i still have to pay the "limited company " fees even though i will have gone back to PAYE?
How much would it cost to close down the “Limited company”?......or is it just however much the accountant wishes to charge?…which could be unlimited money?

[jc101]

You can start a company for almost nothing, and close it down just as easily.  The stuff in between needs to be done correctly.

The company gets paid for the work, the only way you can get the money out is to pay yourself PAYE or dividends (both require admin, and PAYE also requires some basic stuff to be done relating to pensions too).  You used to be able to close the company down and only pay 10% tax on the profits, but you have hold the shares for 5 years to do that now.  Dividends are taxed differently than PAYE, and you would be required by law to submit a personal self assessment at the end of the tax year as a Director.  Plus you need to submit accounts and pay corporation tax on any profit the company makes. 

Also be aware of the IR35 rules relating to disguised employment, which at the moment cover the public sector.  The government are looking to expand this to the private sector this year.

If it's just a 6 month contract, and you're not looking to contract in the future - I wouldn't bother, take a look at finding an umbrella company though they will take their cut (either in your daily rate, or by putting the rate to the client up).

Easiest thing would be to speak an accountant who can very easily explain it all, and offer a bit of advice, normally such initial advice would be free.  Depending on the value of the contract(s) it might be worth it.

[NivagSwerdna]

The contracting world is in flux as the IR35/PSC rules start to apply so I would be very careful!  In particular be very wary of using intermediaries (i.e. agencies) since currently they are under great stress as their contractor base evaporates and their fixed costs don't!  Don't be surprised if you aren't paid!

IMHO.... Look again in the summer once the dust has settled.

[trevwhite]

If you open a limited company I believe you have to employ a chartered accountant to submit your end of your accounts. This is going to be an added cost.

[jc101]

If you open a limited company I believe you have to employ a chartered accountant to submit your end of your accounts. This is going to be an added cost.

Nope, "There is no requirement for companies to use a professional accountant to prepare their accounts. However, directors should be aware of their legal responsibilities regarding accounts and if they are uncertain about the requirements they may consider seeking professional advice."

Though it certainly does help to know what can be claimed for etc. and the various gotchas that are red flags to the likes of HMRC to take an interest.

Some basic advice can be found here https://www.gov.uk/topic/company-registration-filing/running-company

There are many, many, websites out there offering advice and filing services.  Often these services are charging you for what is either free or costs a fraction of what they tell you it actually costs.  There is quite a bit of detail on the gov website(s) for HMRC and Companies House, just a lot to plough through.

[retrolefty]

Well laws are most likely different here in the US but there are several ways for a working person can be classified and they have drastically different tax and employee status.

1. Be the owner of a true 'company', most smaller are chapter S corp. you may have or not additional employees.

2. Employed by a company as a direct employee. The company handles tax withholding and tax reporting (W2).

3. Contractor, where you are employed by a company as their employee, handles your tax withholding (W2) but
    sells your services to a 3rd party.

4  Independent contractor where you sell your service to another company under a written contract and you are
    responsible for quarterly tax remittance.

 I've worked in #2,3, and 4 situations before my retirement. Each has it's advantages and disadvantages.
 

[jc101]

Well laws are most likely different here in the US but there are several ways for a working person can be classified and they have drastically different tax and employee status.

1. Be the owner of a true 'company', most smaller are chapter S corp. you may have or not additional employees.

2. Employed by a company as a direct employee. The company handles tax withholding and tax reporting (W2).

3. Contractor, where you are employed by a company as their employee, handles your tax withholding (W2) but
    sells your services to a 3rd party.

4  Independent contractor where you sell your service to another company under a written contract and you are
    responsible for quarterly tax remittance.

 I've worked in #2,3, and 4 situations before my retirement. Each has it's advantages and disadvantages.
 

The US is very different, I thought the UK was complex enough.  I had the misfortune to have a customer who wanted me to complete a W-8BEN-E form, which required a crash course in IRS terminology.  They really know how to make paperwork an unreadable as they can.

The IRS makes our HMRC seem like a beacon of clarity!

[Cerebus]

Speak to a specialised accountant, search "contractor accountancy services" to find a whole bunch to talk to. You can find people who will form the company for you, deal with the accounting and take a lot of the administrative burden off your hands - for a fee (typically £100 - £300 a month depending on what services you sign on for). Depending on how much you offload onto a specialised accountant you will spend between 2 hours and a day each month dealing with administrivia.

You'd be a company director, with all the legal responsibilities that come with the role. You'll have to pay Corporation Tax, VAT, PAYE (tax and NI), Employer's NI contributions, make annual returns to Companies House and run a payroll to pay yourself (as a member of staff). You'll require Employers Liability Insurance (a legal requirement) and are strongly advised to also carry professional indemnity insurance. You'll need a company bank account, you'll have to issue invoices and account for VAT. You will have to make sure that you understand that although you may own the company wholesale the company's money is not yours, you have to properly account for any monies transfered from the company to your person (e.g. salaries, expenses and dividends).

It is not a job for amateurs. Any bit you don't know how to do you need to pay someone competent to do for you. At the end of the day as a company director the final responsibility for conducting yourself lawfully resides with you - generally if you act on competent professional advice you'll be OK - but you are where the buck stops. If your company  dones't pay the various monies you'll owe to HMRC when they are due the company will attract penalty fees. Don't pay at all and you personally can pay substantial fines and even go to jail.

You can 'wind up' the company if you find you no longer need it. Again, a decent accountant will deal with the details of this for you. You can incur quite a tax bill if you don't do it right.

[ebastler]

Treez, I don't quite understand. Thought you had owned and managed a Ltd. company before, a few years ago?!

But as others have stated: There is a lot of overhead associated with this. And setting up a Ltd. exclusively to deliver your own services, to one customer only, might imply a "disguised employment" situation -- better check the UK laws on that front.

Did your potential customer indicate why they want you to act as a Ltd.? There might be some liability advantages for them, which translate into disadvantages for you...

[unknownparticle]

Things may have chenged since I was last involved in a UK Ltd comapny but I think you would need at least 2 registered directors, a company secretary and would have to be VAT registered.  As far as accounts are concerned, you can indeed process and submit your own books but if they haven't been audited by an independant accountant and anything goes wrong, then you are at the mercy of HMCE.
Also, once registered as director of a company, you will be permanently on companies house records with your name and home address, even when the company is dissolved.

[Cerebus]

Things may have chenged since I was last involved in a UK Ltd comapny but I think you would need at least 2 registered directors, a company secretary and would have to be VAT registered.  As far as accounts are concerned, you can indeed process and submit your own books but if they haven't been audited by an independant accountant and anything goes wrong, then you are at the mercy of HMCE.
Also, once registered as director of a company, you will be permanently on companies house records with your name and home address, even when the company is dissolved.

No. Single director companies are now OK, you don't need a formal company secretary (unless you meet certain criteria which wouldn't be applicable in this case). VAT registration is, and always has been, voluntary until you hit a certain turnover threshold which is currently £85,000 pa (see here for the full list of thresholds).

[tom66]

Another thing worth noting, a Ltd company is not really that tax efficient.

Say you expect £50k pa as a salaried engineer.  The PAYE after tax take is around £37k and a Ltd company might net you £40k ... figures from memory, but it wasn't as much of a difference as I expected.

From that £3k you need to pay an accountant (£800 ~ £1500/year), deal with administration hassles, buy the insurance policies and risk IR35 non compliance, all while getting no employee rights or easy redress in the case of non-payment.

There are some additional benefits - you can write off business purchases, like software,  but then again employers would generally purchase that for you anyway.  You can claim back mileage for use of a personal vehicle, but not if to a single place of work (there are exceptions for the first year I believe.)  Also, you can hold an annual party not costing more than £150 per employee tax-free.

The reason contracting is so attractive to companies is they can "sack" you with little notice (one contact I saw was 7 days notice.)  If you're financially secure that's not an issue, but if you're expecting the reliability of a monthly paycheque then it's not the way forward.  The other benefit is the contracting company doesn't pay 13% NI employers' tax, which is the main reason that HMRC are going after contracting firms as they see this as a tax dodge even though the contractor will be usually paying a similar rate to a salaried employee.

Speak to an accountant for proper advice, this does not construe any accountancy/tax/legal advice.

[donotdespisethesnake]

Ignore all advice not relating to UK or experience prior to this year!

Given the upcoming (April 2020) changes to private sector IR35 rules, which are changing the ball game completely, I think you would be literally crazy to start a PSC now! It is really a hot mess, most companies who need to be engaging with it are still clueless and those who have addressed it are generally placing blanket bans on PSCs.

Especially if it is for a few months and not intended to be long term, sign up with an umbrella company and forget about Ltd.

[fcb]

It all boils down to if HMRC consider you IR35 or not. Not if you bill thru limited/umbrella company, etc..

Basically - can you prove you work at your will not theirs - if the client defines your hours and controls your work you are IR35. If you can get up and walk out at will, possibly have other paying customers, etc.. then you might not be IR35.

[ocset]

Thanks,  regarding this IR35 stuff, there is a big electronics defence contractor in UK, where they are currently loosing all their contractors because of IR35...A  recruiter told me this the other day.

[NivagSwerdna]

...where they are currently loosing all their contractors because of IR35...A  recruiter told me this the other day.

I know someone who has just lost several months money because the intermediary went bust.  There is lots more fallout to come over this.  I've contracted on and off over the decades... quite happy to currently be permanent until the dust settles again.