The Department of Trade and Industry (DTI) published The Conduct of Employment Agencies and Employment Businesses Regulations 2003, the main provisions of which came into force on 6 April 2004. There has been objection to these regulations and the government has recognised that contractors using either their own limited companies or umbrella companies are a special case. As a result contractors operating specifically via limited companies can opt out of the Agency Regulations.
Please bear in mind that government policy does change. You should seek advice from an appropriate body about your personal circumstances and what's best for you. Please see our resources sections for a number of contacts and information providers.
Both methods of payment are possible, but in order to make a decision about the best way forward we strongly recommend that you become familiar with the government's IR35, and take professional advice around your personal circumstances.
PAYE
As a PAYE contractor you contract directly with Prosper Consulting, who'll pay you an agreed rate. Income tax and national insurance will automatically be deducted from this amount. We'll then pay the deductions to HM Revenue and Customs on your behalf. Prosper will provide you with a monthly or weekly payslip and a P60 at the end of each tax year. If applicable, you'll have to complete your own tax return, but otherwise there's nothing else you need do. For self assessment or general tax queries visit: www.hmrc.gov.uk
Limited Company
Many contractors choose to set up their own limited company. If you choose this route, administration, tax and legal obligations are your responsibility. Your limited company would employ you whilst Prosper would contract with your limited company.
Advantages of setting up and operating a limited company:
- Quick and easy to establish
- Can be a flexible option
- Some expenses can be claimed (eg: subsistence and travel costs)
- You can take dividends out of your limited company, reducing your overall tax bill
Disadvantages of setting up and operating a limited company:
- Administration costs: it's your responsibility to lodge yearly accounts with Companies House
- Other costs: You'll need to arrange appropriate professional indemnity (PI) insurance
To set up a contract you'll need to provide your company name and registered company address, along with a copy of your company's Certificate of Incorporation and VAT number. You'll be paid after the submission of an invoice accompanied by a timesheet signed by you and the line manager.
The contract will be between your limited company and Prosper Consulting Limited. It's important that you're happy with the contract terms and conditions before signing.
Your third option could be to become an employee of an 'umbrella' limited company. The umbrella company will handle some of the administrative responsibilities of becoming a contractor, including statutory returns such as PAYE and VAT. Umbrella companies usually charge for their services - either a percentage of your earnings or a flat rate. One advantage is that you'll only need to complete timesheets and expenses forms. See below for some useful links to umbrella companies.
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