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  1. #11
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    Quote Originally Posted by mike67 View Post
    Get your drift. I meant that any agency should be able to work with any decent umbrella company if you insist - there is nothing magical about their preferred ones. The reason they don't is either laziness as they don't want the hassle of working with several of them (although they are happy to work with any number of PSCs!) or because they get commission for using a specific one.

    A decent agency should offer to introduce you to their preferred umbrella company (to get their commission) but if you want to work with any other one they should accommodate (as long as they are not operating a dodgy tax scam scheme).
    The fear is how do they know its not a dodgy tax scam.... That check is a lot harder than you may think....
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  2. #12

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    Quote Originally Posted by eek View Post
    The fear is how do they know its not a dodgy tax scam.... That check is a lot harder than you may think....
    The due diligence process for an agency working with a new umbrella should be similar to that done by a contractor working through them. I think we all know that anything above 60% take home, anything that involves loans, trusts or foreign currency, anything offshore, anything that has been checked out by a QC(!) is likely to smell. Then chuck in a quick check on Companies House to see how long they have been around, and if it isn't long whether the directors have just liquidated another business. And a quick check on forums like this.

    The risk is (at the moment) primarily on the contractor if they accidentally or deliberately use a dodgy "umbrella company" as many have found out. The risk to the agency is more reputational, ie they could be seen as facilitating in some way the tax avoidance. If they have taken reasonable care in vetting an umbrella company they should be fine. A decent agency should be able to do some basic checks within about 20 mins.

  3. #13
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    Quote Originally Posted by mike67 View Post
    The due diligence process for an agency working with a new umbrella should be similar to that done by a contractor working through them. I think we all know that anything above 60% take home, anything that involves loans, trusts or foreign currency, anything offshore, anything that has been checked out by a QC(!) is likely to smell. Then chuck in a quick check on Companies House to see how long they have been around, and if it isn't long whether the directors have just liquidated another business. And a quick check on forums like this.

    The risk is (at the moment) primarily on the contractor if they accidentally or deliberately use a dodgy "umbrella company" as many have found out. The risk to the agency is more reputational, ie they could be seen as facilitating in some way the tax avoidance. If they have taken reasonable care in vetting an umbrella company they should be fine. A decent agency should be able to do some basic checks within about 20 mins.
    Not anymore the risk is with the agency see Failure to prevent tax evasion: how will the new law affect recruitment businesses? | Osborne Clarke .
    merely at clientco for the entertainment

  4. #14

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    Quote Originally Posted by mike67 View Post
    The due diligence process for an agency working with a new umbrella should be similar to that done by a contractor working through them. I think we all know that anything above 60% take home, anything that involves loans, trusts or foreign currency, anything offshore, anything that has been checked out by a QC(!) is likely to smell. Then chuck in a quick check on Companies House to see how long they have been around, and if it isn't long whether the directors have just liquidated another business. And a quick check on forums like this.

    The risk is (at the moment) primarily on the contractor if they accidentally or deliberately use a dodgy "umbrella company" as many have found out. The risk to the agency is more reputational, ie they could be seen as facilitating in some way the tax avoidance. If they have taken reasonable care in vetting an umbrella company they should be fine. A decent agency should be able to do some basic checks within about 20 mins.
    You do love your theory don't you.
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    Quote Originally Posted by Zippydill123 View Post
    I have worked via my own ltd company in the private sector for the past few years. Am now looking into my first public sector contract and have been told that the client requires contractors to use an umbrella company, not ltd.
    Just had the same story from a recruitment consultant.

    My Ltd. company owns a small office that it is paying a mortgage on, so I need it to keep earning and have accounts that I can present to the bank when the 5 year review comes up. If I was forced to switch away to an umbrella it just would not work for me, unless I could somehow contrive a way of flowing that income through the ltd. without incurring more taxes on it..?

    It is definitely not true that you _have_ to work through an umbrella. In fact working through an umbrella means that IR35 does not apply, since you are just an employee of the umbrella and already paying income tax and NI. IR35 only comes in when a ltd. company is deemed to be actually providing a contractor as an employee, in which case the tax is taken out before your invoice is payed, and the ltd. does not incurr further taxes on this amount.

    I think I am going to apply for the job anyway - if they offer it to me I will only take it if I can continue through my ltd. If not, it will be a good practice interview.

  6. #16

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    Quote Originally Posted by willendure View Post
    Just had the same story from a recruitment consultant.

    My Ltd. company owns a small office that it is paying a mortgage on, so I need it to keep earning and have accounts that I can present to the bank when the 5 year review comes up. If I was forced to switch away to an umbrella it just would not work for me, unless I could somehow contrive a way of flowing that income through the ltd. without incurring more taxes on it..?

    It is definitely not true that you _have_ to work through an umbrella. In fact working through an umbrella means that IR35 does not apply, since you are just an employee of the umbrella and already paying income tax and NI. IR35 only comes in when a ltd. company is deemed to be actually providing a contractor as an employee, in which case the tax is taken out before your invoice is payed, and the ltd. does not incurr further taxes on this amount.

    I think I am going to apply for the job anyway - if they offer it to me I will only take it if I can continue through my ltd. If not, it will be a good practice interview.
    You don't have to but the liability is on the agent or client (depending on situation) so it's very unlikely they will allow you to use your LTD. So yes you don't have to in theory, the reality will be that you will have to use an umbrella or Agency PAYE.

    Even if you did use your LTD all the income will be taxed as PAYE wont it. There will be no profit to continue paying the mortgage anyway? Or something like that.

    Plenty of guides on the nuances but something doesn't sound right there.
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  7. #17

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    Quote Originally Posted by northernladuk View Post
    You don't have to but the liability is on the agent or client (depending on situation) so it's very unlikely they will allow you to use your LTD. So yes you don't have to in theory, the reality will be that you will have to use an umbrella or Agency PAYE.
    "the liability is on the agent or client" - I don't understand this. They deduct the PAYE then give you the money, so what difference does it make to the agent or client that the money is handed to an umbrella vs PAYE; the liability is already taken care of, no?

    Quote Originally Posted by northernladuk View Post
    Even if you did use your LTD all the income will be taxed as PAYE wont it. There will be no profit to continue paying the mortgage anyway? Or something like that.
    Hmm, yes it does kind of force a company into becoming non-profit making doesn't it? I think just because IR35 applies does not mean you have to take all the money out of the company at once. It is possible to leave it there despite having already paid tax on it. I think perhaps it can be counted as profit, just profit that is exempt from further taxation through corporation tax?

    I am trying to move away from contracting and turn my business into a product company. In that resepect IR35 is very annoying because the business needs to retain profits and invest them in R&D for the products being created. I'm only going to be able to develop my products to a minimal degree anyway with the small budget I can earn through contracting - I'll need to find other investors to get things to the next level.

    In that respect IR35 is still problematic; if approaching a bank or VC fund I'd like to be able to present them with a good set of accounts for the last few years. IR35 - just another road block for small businesses to find a way around... We already got the dividend tax to try and level the unfair tax advantages of incorporation, I don't even see why IR35 was needed except perhaps it was lobied for by larger businesses to suppress competition from smaller ones?

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