Steps to contracting

Before we begin detailing the steps to contracting, you might also find our new How to become a contractor guide - illustrated infographic useful.

Find below our very short, plain English guide to help get you started. It assumes you’ve either accepted or are just about to accept a contract and wish to work through your own limited company.

Some of the most common questions we get asked by new clients are:

  • What do I do need to do now I’ve accepted my contract?
  • How much does it cost to set up a limited company?
  • How long does it take?
  • Where do I start and in what order should you do things?

Whatever your question the good news is the answers are all very simple, both Companies House and HM Revenue and Customs (HMRC) have streamlined their procedures to encourage people to start up limited companies with the least amount of hassle and barriers.

So let’s assume you have a contract, what next?

1. Form a limited company

You need to do this because you will need to show your certificate of incorporation to your agency/client. Click the following link to form a limited company.

2. Open a business bank account

You need one of these so your agency/client can pay you.

Sound simple so far?

Forming a limited company may sound a little scary but in reality, it’s very simple and takes no longer than five minutes providing you know:

  • Your own name
  • Where you live
  • When you were born

You’ll also need to think of an appropriate name (you can check availability here).

You’ll need to appoint yourself as a director and allocate yourself some shares, we would be happy to give you some advice just call 0500 152500 / 01442 275789 or mail michelle.turbutt@sjdaccountancy.com. This process just takes five minutes and your company will usually be formed with three hours during working hours.

Once formed you’ll receive an electronic copy of your certificate of incorporation and your registered company number. We will also send you a paper certificate along with:

VAT Registration – this will help you register for VAT and so you can benefit from VAT schemes such as the Flat Rate VAT Scheme which could generate extra income for you.

Register you for PAYE – this means setting up your payroll and ensuring you receive a salary and make National Insurance contributions.

Help with a business bank account – we send you a bank account application form with our chosen provider Cater Allen. We recommend this company (part of Santander) because of their long held commitment to free business banking, they also remove the minimum £5,000 opening balance requirement because you are being referred by SJD. 

Alternatively you can of course use any bank. Opening a business bank account takes approximately five working days, so it's best to make sure you allow sufficient time.

Once your bank account is open you just need to provide your recruitment agency or client with the details so they can pay you. It’s best not to get paid into your own personal bank account - it can cause a few problems tax-wise as the money is officially your company’s and not yours yet.

Surprisingly enough this is all you need to do to get started, you are now in a position to get paid and start working.

So how does it work from there on?

Again all quite simple, you’ll submit time sheets and send an invoice to your client/agent once a week/month or whatever you agree with them (you can download a free invoice template here). Your agency/client will then make payment into your business bank account.

How do expenses work?
You’ll probably incur some expenses during the course of your contracts, simply pay for these with your own money and then your company will reimburse you. To do this you’ll just need to do either a bacs transfer from your business bank account or write yourself a cheque from your company bank account cheque book.

Please be aware the next bit is very simplified and doesn’t include everything but it will hopefully help you understand how expenses affect your tax bill, for a more detailed explanation it’s best discussed with your dedicated tax advisor (also for more information about expenses read our free Expenses guide).

Expenses aren’t taxed, so if your contract is for example £10,000 a month and you didn’t have any expenses this month and you withdrew all the £10,000, you would pay tax on the full £10,000. However, if you had £2,000 of expenses, you would now only pay tax on the £8,000 and pay less tax. It doesn't work exactly like this as it doesn't include the affect of your PAYE salary, dividends or even the flat rate VAT scheme but hopefully it will give you a basic understanding of how expenses affect your tax bill.

Remember! You must be able to provide evidence you actually incurred the expenses if HM Revenue and Customs ever asked you.

How do you pay yourself?
Typically once a month you’ll pay yourself a salary (your dedicated tax advisor will help you understand how to handle this) and also make a dividend payment. This obviously assumes your company made a profit, profits are simply your contract value less expenses, salary and any other costs your business incurred.

To pay yourself and receive a dividend, just like expenses, simply write a cheque from your business bank or make a basic payment.

All you need to do is ensure you make sufficient provision in your business bank account to pay your taxes, again your accountant will help you to know who much to save and also help with tax planning.

So in summary:

- Form a company (take five minutes to do and three hours to process)
- Give your agency/clients a copy of your certificate of incorporation
- Open a business bank account (takes about five minutes)
- Send your client/agency an invoice
- Once they pay you, have a chat with your tax advisor RE expenses, PAYE, dividends etc
- Move money from your business bank account to your personal account

See we told you it was simple.

If you have any questions about this or anything to do with going limited or contracting through a limited company then contact our New Client Services helpdesk on 0500 152500 / 01442 275789 or email michelle.turbutt@sjdaccountancy.com.

If you wish to appoint us as your accountants immediately, the quickest and easiest way to do so is by accessing our Client Agreement Form.

SJD Accountancy

SJD Accountancy are the UK's largest specialist provider of fixed fee, Limited company accountancy services to contractors; we've been acting for contractors across the UK since 1992 and have more than 13,000 clients.

We are the only national specialist firm of contractor accountants with offices across the UK. SJD Accountancy also have more qualified staff than any other firm in our market with qualifications from the following major tax and accountancy bodies - ATII, ATT, AAT, ACCA, CA, ACA, FCCA, ACMA.

  • Unlimited face to face meetings. This is another unique service for a nationwide accountant to contractors, only SJD Accountancy offers unlimited face to face meetings across the UK - tax is complicated and sometimes only a meeting will do.
  • UK's Largest contractor accountants with more qualified staff. No call centres, no outsourcing, no automated call handling. Simply telephone, email or meet your own dedicated accountant* face to face.
  • Money back service guarantee. All your telephone calls and emails will be answered the same day or we will make a full refund of that months fee.
  • Outstanding reputation. We have won more awards for customer service and accountancy excellence than any other firm in our market, including: Best Accountant for Contractors, Accountant of the Year and Best Professional Service Team to name just a few.
  • All inclusive low cost fixed fee accountancy package which includes completion of accounts*, payroll bureau, dividends and corporation tax computations, personal taxation, free bookkeeping software, your own dedicated accountant* and all company returns for a fixed fee of £110 plus VAT per month.

If you have any questions about contracting or would like any further advice please call our new client services helpdesk on Freephone 0500 152500 / 01442 275789 or email: lisa.wood@sjdaccountancy.com.

Appoint SJD Accountancy and never worry about your tax or accountancy affairs again.

You may also find the following pages, guides and case studies useful:

*If you would like us to complete your company year end accounts we simply ask that you have been a client of SJD for one year or have made 12 monthly payments. All accountants are part or fully qualified.