Winning a contract is nothing like getting a new job with a permanent employer. Contractors are normally expected to start work very quickly once they have been awarded their contract – an immediate start is one of the benefits contractors bring to end user clients.
And because the contractor is providing a business-to-business service to their client, usually via an agency, they need to have a ‘trading solution’ in place so they can invoice the agency or client directly for their fees.
Expat contractors who have recently arrived in the UK and already have a contract, or very quickly win a contract, may have to have a trading solution in place in a matter of days or a few weeks.
What is a ‘trading solution’?
When a business is providing products and services to its customers and generating income, the business is ‘trading’. A contractor is basically a business providing knowledge-based services.
The contractor trading solution usually refers to the legal entity that the contractor will use to trade with the agency or end-user client. In the UK, there are various legal entities available for a businessperson to trade under.
The contractor trading solution usually refers to the legal entity that the contractor will use to trade with the agency or end-user client
These include being self-employed, also known as being a ‘sole trader’, being in a partnership or limited liability partnership (LLP), a community interest company or having a limited company. Each has a range of advantages and disadvantages.
Contractor trading solutions
Contractors have to consider many factors when deciding on their trading solution. These might include issues such as managing risk, ring-fencing company assets and personal assets, creating a brand, tax implications and employment legislation.
The last issue probably has the greatest impact on a contractor’s choice of trading entity. Because of the risk of contractors claiming employment rights from their clients, clients insist that contractors use a separate legal entity, such as a limited company, or in a very few cases a partnership or LLP, even if they are working for the client via an agency.
The most popular trading options chosen by contractors are:
- A limited company
- An umbrella company
- An alternative solution, such as an offshore solution or Employee Benefit Trust (EBT).
Most contractors in the UK have their own contractor limited company or use a contractor umbrella company.
How to quickly start trading
An expat contractor arriving in the UK to start work on a new contract can have a trading solution up and running in a matter of days.
To start contracting by using an umbrella company, the contractor has to open a personal bank account and then create an umbrella company ‘account’ online or over the telephone. Some umbrella companies claim that the contractor can ‘go live’ in a matter of hours.
There are usually identity checks and confirmation of visas and working arrangements that the umbrella company has to process, but in many cases a contractor could request their umbrella company to send their first invoice to the agent or client on their new contract within a week.
A limited company can be incorporated, or 'formed', using an online service provider in a matter of hours and then be ready to trade and issue invoices to agents or clients almost immediately.
However, the contractor will need to bank any payments made on invoices and supply payment details to the agent or contractor. To do this, in addition to their personal bank account, they will need to apply for a business bank account for their limited company. This can take from a few days up to several weeks, depending on identity and money laundering checks the banks are obliged to undertake.
Once the trading solution is in place, the contractor can start earning money from their new contract almost immediately.
Taking professional advice can be cost-effective
The choice of trading solution is a complex one, as it depends not only on the contractor’s personal circumstances and preferences, but also on many other tax, financial and legal issues.
Not making the correct choice early on can prove to be an expensive mistake, and so expat contractors are strongly recommended to seek advice from professionals who specialise in contracting issues.