What are the issues that freelance contractors should be aware of?

Freelance contracting is a common way of operating in the oil & gas and IT industry. But what are the issues that freelance contractors should be aware of? One of the benefits of operating as a limited company contractor is the ability to structure how you extract profits from the company in a tax efficient manner.

However, under IR35 legislation, if HMRC believe you are behaving like an employee of the client, then they may attempt to tax the fees you have received from your client as if they were salary payments and deduct PAYE tax and National Insurance.

You will be required to submit annual accounts to Companies House within 9 months of the company’s financial year end. You will also be required to pay any corporation tax due on company profits within 9 months of the company’s financial year end and electronically file a Corporation Tax Return within 12 months.

You will be required to submit quarterly VAT Returns but you may be eligible for the Flat Rate VAT Scheme which simplifies the VAT Return process and may result in VAT savings for the company.

Any salary taken from the company will required to be notified to HMRC under Real Time Information (“RTI”) and PAYE and National Insurance deducted. Also any taxable benefits or expenses you receive from the company will require to be notified annually to HMRC.

You will be required to submit a Self-Assessment Tax Return annually detailing any income you have received from the company along with any other sources of income you may have.

Freelance contractors do not have the same protection as an employee so you may need to protect your earnings in the event of illness or injury.

Also, if you employ just one other person and you both work under a contract of employment, then you will have duties and responsibilities in relation to the Auto Enrolment regime under the government’s Workplace Pensions Reforms legislation.

If you require more information, please don’t hesitate to contact us.