Does anyone on this site work as a software development contractor as their main job? I was reading about the amount of things required to get set up and it sounded a little daunting. I was under the impression you could just get paid, keep track of all the payments, and then pay tax using a couple of forms. Now that might not be the best way tax-wise but is it possible to work like that, instead of setting up a company to trade under? I'm in the UK by the way so if anyone doing this as a living in the UK wouldn't mind chatting off-line, let me know. Thanks

But do you need to be a company? I thought that as long as you pay tax on your earnings, you are OK... there are benefits in working through a company but is it a necessity?

Quote:Original post by Sandman
It's probably a good idea to talk to an accountant.

Definitely. I believe in the UK there are even bodies which give free advice on such things.

But I'm looking to be informed before getting that far, so I know the basic things at least. So any tips or links relevant to the UK are gratefully received.

I am in a similar situation to you I think. I was employed for a year but then switched to being a contractor.
Now, IANAL but so far I have been doing some work as a 'Sole Trader'. I do some work and then I write an invoice to the company. I have to keep track of everything and at the end of the year complete a self-assessment form for my taxes, which as far I have read is greatly simplified compared to the next option...
Starting a limited-liability company. I will probably be looking to do this sometime after the financial year has ended but unfortunately I cannot offer much advise since I plan on hiring an accountant to take care of the setup and then all the taxes and forms I will need to do.

I think those are your two main options, operating as sole trader or as a limited company. I don't know which is available or more applicable in your circumstances but the sole-trader route is certainly a lot easier and less paperwork (I think the only thing you really need to do is contact Inland Revenue to say you are self-employed) so would make most sense if you can take it.

Once again, I'm pretty new to it too so I am sure someone can correct me :P

Thanks. Those are the options I expected to have, so it's good to hear. From what I gather, there are substantial tax savings from working through a company, and apparently there is something called I35 (or something) which can allow you to get out of paying National Insurance.
I take it you currently are paying standard tax rate & NI payments just as if you were on a salary?

I am fairly certain nts and yourself are correct as this was what I was under the impression of.

As a sole trader things are fairly easy. You don't need to register yourself with Companies House, but you do pay standard tax and NI, although I'd imagine it's a bit of a saving as it is only done at the end of the year when you complete your self-assessment and so have maybe gained on interest over the year.

In the long run though it is more beneficial to set up as a limited company and you can maximise your profits by careful control of financials such as paying yourself a low salary.