Are you are a web site designer working for your clients on a contract basis?
You may be working to help your clients define their website needs, through all stages of visual design and content development, test launches and delivering the completed website to the client.
If you are a contractor, you may be better off working through your own Limited company rather than working through your agency’s books or joining an umbrella company.
At Clearways Accountants, we can tell you that working through your own Limited company is the most tax efficient way of taking on contracting work. Your company’s profits will be taxed at 20% per annum no matter how much the company earns and depending on how much you take out of the company you may not pay any further tax (please see articles on the new dividend tax rate as this may not always be true).
Benefits in being a Contractor:
- There is constant demand for both the new and refreshed web design services you provide, so you will never be short of work;
- You can work from anywhere you want to;
- You have the freedom to work when you want;
- You can take on long or short-term contracts – to suit you;
- You have opportunities to expand your skills through keeping up with IT innovations and software developments; and
- Generally Contractors have higher rates of pay (than employees).
Working as a Contractor through your own Limited company, you will be able to deduct travel costs from your day rate (although see our article on the 24 month rule if you take a long contract).
You can also save on National Insurance. When you are enrolled on your agency’s books, or if you work through an umbrella company, you will pay both employers and employee’s National Insurance out of your day rate (the combined NIC rate can be about 25% on earnings above £155 p/week in 2015 – 2016.)
If you contract through your own Limited company you could save the following amounts of National Insurance per day:
- At a day rate of £200 save approximately £41 per day in employee’ and employer’s NI (£9,635 for a 5 day week, 47 weeks a year)
- At a day rate of £350 save approximately £64 per day (£15,040 for a 5 day week, 47 weeks a year)
- At a day rate of £600 save approximately £104 per day (£24,440 for a 5 day week, 47 weeks a year)
But, there are also some downsides to working through your own Limited company:
- You will have to be a director of your own company with more responsibilities than just being an employee;
- Your employer will no longer make contributions to your pension fund;
- You will need to be organised to invoice your agency, collect the fees and check your company bank account;
- You will need to put aside some money to pay your company tax bill each year; and
- You will probably need to take out professional indemnity insurance.
Financial administration of your own Limited company is very manageable – most people need less than an hour a month to keep their business records up to date.
Web design contractors should register for VAT and join the flat rate scheme – you may find there are even more savings to be made.
If you would like help in setting up your own tax efficient contractor Limited company servicing your clients’ web design needs, then please contact Clearways Accountants using the email form below or call us on 01737 244298.