One of the benefits that a contractor brings recruiters and an end client is that they manage their own tax, payroll, and accounting affairs, relieving the client of the legislative burden and employment headaches. They will invoice for services instead of receiving a salary and in order to do this they need to adopt a recognised trading method.
There are four main trading options; a limited company (sometimes referred to as a Personal Service Company), PAYE employee of the end client or agency, Umbrella company employee, and a fourth seldom-used option – Self Employed (also known as Sole Trader) – that is included for completeness.
These are shown in the diagram below.
If the candidate intends to contract for the medium to long-term, only one of these options makes sense. Running a limited company provides a host of benefits compared to any other trading option, and will increase personal wealth in virtually all circumstances.
There is little doubt that supplying services via your own limited company offers the highest level of personal protection; the greatest level of control and the best tax planning opportunities. It is for these reasons that 1st Option only supports professionals who want to establish their own Limited Company.