Is this legit?

[LisaContractorUmbrella]

I have a colleague working for the same client as me, I am limited company, he claims he is working through JSA via a managed company and is being paid dividends.

He reckons he gets 80% return but to be honest he's not that clued up and I think he is working from sales pitch.

What kind of scheme is this? Is it legit and will it fall foul of the recent umbrella company legislation?

If the proposed legislation does not change during the consulation period, your colleague will not be able to receive dividends in this way post 6th April 2007. The legislation will basically give contractors 2 options. If you are outside IR35 and want to draw dividends start a personal limited company over which you must have complete financial and adminstrative control (which is why managed limited and composite arrangements will no longer be viable). If you do not want to start your own company - maybe you will only be contracting short term or do not want to make the commitment straight away - then the only other option is to receive your payments via PAYE e.g. through an umbrella company. HTH.

[Nixon Williams]

Advantage of your own limited company include:

1. Join the Flat Rate VAT scheme and boost your income by 3.4% in the first year. This is not available via an umbrella or MSC

2. Claim expenses such as travel, mileage etc, again not available via a MSC after April and probably not with an umbrella.

It is not as bad as you might think the admin should only take 30 minutes a month as your accountant should be doing the rest.

Alan

[LisaContractorUmbrella]

Advantage of your own limited company include:

1. Join the Flat Rate VAT scheme and boost your income by 3.4% in the first year. This is not available via an umbrella or MSC

2. Claim expenses such as travel, mileage etc, again not available via a MSC after April and probably not with an umbrella.

It is not as bad as you might think the admin should only take 30 minutes a month as your accountant should be doing the rest.

Alan

I agree Alan, there are some financial benefits to a Limited Company and it is the most sensible financial route if your contract is outside IR35 but it is not for everyone and a reputable umbrella company is not in any way a 'dodgy' alternative for someone in that position. If you have to receive payment via PAYE because of your IR35 status a good umbrella company is a hassle free alternative to your own company. None of us know what is happening regarding expenses as the IR, to my knowledge, have yet to confirm their position.

[Nixon Williams]

Not all Umbrellas are "dodgy" but we all know of ones that let their clients think an expenses dispensation was an excuse to take whatever they wanted in made up expenses.

Whilst an umbrella can be an option it is certainly not a good financial choice, the net pay is worse than if caught by IR35 and they cannot benefit from the VAT Flat Rate, interest on the account etc.

It will suit anyone that cannot organise themselves to send copies of invoices etc to an accountant but that is all to be said for this option.

Alan

[LisaContractorUmbrella]

Not all Umbrellas are "dodgy" but we all know of ones that let their clients think an expenses dispensation was an excuse to take whatever they wanted in made up expenses.

Whilst an umbrella can be an option it is certainly not a good financial choice, the net pay is worse than if caught by IR35 and they cannot benefit from the VAT Flat Rate, interest on the account etc.

It will suit anyone that cannot organise themselves to send copies of invoices etc to an accountant but that is all to be said for this option.

Alan

I think that you are over-simplifying things a little Alan. I am sure that you would not advise a new contractor with a 6 week contract that it would be in their best interest to open a Limited Company straight away. I agree with you that a Limited Company is the best financial option for a career contractor but short term or low paid contracts do not really warrant the commitment to a Ltd Company. Some contractors also enjoy the convenience of an umbrella company even if they are career contractors on high income - not everyone is driven by money Alan

[rootsnall]

Some contractors also enjoy the convenience of an umbrella company even if they are career contractors on high income - not everyone is driven by money Alan

Eh !!?!?!?!

[LisaContractorUmbrella]

Eh !!?!?!?!

Sorry that didn't come out quite as I meant What I meant was that financial savings will not be the primary reason for everyone when they are considering whether to work through Ltd or an umbrella

[Nixon Williams]

I think that you are over-simplifying things a little Alan. I am sure that you would not advise a new contractor with a 6 week contract that it would be in their best interest to open a Limited Company straight away. I agree with you that a Limited Company is the best financial option for a career contractor but short term or low paid contracts do not really warrant the commitment to a Ltd Company. Some contractors also enjoy the convenience of an umbrella company even if they are career contractors on high income - not everyone is driven by money Alan

Very few (if any) contractors who approach us are on 6 week contracts so this is not an issue for our clients.

I would say that the vast majority of our clients are driven by the money and want to keep as much as they can.

Umnbrella's can offer a service to certain people, my point is that it is not a good financial move for most.

Alan

[Cowboy Bob]