thinking going Ltd, but is it the right time?

[Casablanca]

I've contracted on and off (via umbrellas) and had a few perm roles. Currently on a 12 month £400/day contract and unlikely to go back to a perm role for next few years at least. All advice I've seen on here suggests that assuming I don't mind the additional admin, and my contract is deemed outside IR35, then I'm foolish if I don't operate through a Ltd company.

A slight complicating factor is that we may try for a second child later on this year so (if all goes to plan), I'll be out of the job market for a year from mid 2011 or a bit later. So at first I thought, not worth setting up a Ltd now since I'd still need to be paying insurance/accountancy fees whilst not earning.

Then I wondered if I built up enough £ in the Ltd company account whilst in this contract, I could continue to pay myself during a period of 'maternity leave' plus the Ltd can claim SMP from the government assuming I meet the qualifying 26 weeks etc. It might be tax efficient to split my earnings over >1 year. I'd also consider upping my salary from the Ltd relative to dividends for a period to get the most from the first 6 weeks of SMP at 90% of salary.

I will try and get advice from an accountant (help - how do I know if an accountant is a good one for contractors? just word of mouth? what questions should I ask?) but I'd appreciate your thoughts for other things to consider.

I've also thought that I should get my current contract checked out re IR35 before I make any change. What's the best way to do this? I think I saw someone on this site work out that if within IR35 the tax gain trhough a Ltd is only about 5% which doesn't sound enough to warrant the extra effort involved over and above the cost of an umbrella. I've always shied away from setting up a Ltd company because of IR35 e.g. I don't have multiple clients/income streams at any one time

By the way I've spent time searching threads for advice and looked at the stickies...and sorry if these questions seem stupid. I'd appreciate your input.

[TykeMerc]

On the face of it a 12 month £400/day contract would probably indicate a Ltd is worthwhile especially if the maternity pay thing works that way (it didn't exist when my kids were born) as you've said an accountants advice would be worthwhile, there are several who post on CUK.

IR35 wise you can pay QDOS or Bauer and Cottrill (sp on the second name?) for a competant contract review.

If you've built up cash in the Ltd there's nowt to stop you paying a salary while you take time to be with the new child.

[MarillionFan]

You'll definitely need to check with your accountant.

My partner and I had a second child last year. My partner is employed within one of my businesses and I had the same idea. The calculation period was surprisingly only over 8 weeks of the six months she had been employed. So just before that period I maxed out her salary to gain the maximum SMP from the government.

I assumed that I would have to reduce PAYE costs over the next months, but my accountant managed to get the revenue to pay the entire SMP up front and so I landed up with a rather large cheque back into the company.

With you as the company director, I'm not sure how the rules would work, but I would imagine you're entitled to it but let them guide you.

Also, apply for the Healthy Food Grant as well (little known but another chunk of free cash!)

HTH

MF

[C0ldf1re]

Going Ltd is definitely your best path.

You don't need an accountant if you are moderately bright.

Mind you, if you visit the typical accountant he will warn you about various problems (i.e. he will invent problems so you have to pay him for "solving" them.)

[inniAccounts]

Hi there. We've got a service that will help you run your ltd co - if you're comfortable with a DIY approach then hopefully you'll find our free online software useful. If you want more advice about the maternity pay situation then have a chat with Carl, our accountancy manager - carl [at] inniaccounts.co.uk - he'll be happy to help.

James

[lje]

There was a recent discussion about maternity pay via your limited...

http://forums.contractoruk.com/accou...-paye-tax.html

On there I calculated the overall income level depending on various options using a spreadsheet which I put together (PM me if you want a copy - no guarantee it's correct though!).

You need to remember that you'll pay much more in NI if you increase your salary. Note that you don't need to increase your salary as such - you can declare a bonus (for being such a great employee) during the qualifying period - you still have to pay NI though.

It looks like you'd have to give yourself a very big bonus to make money - although the maternity pay is higher so is the national insurance payment.


With a salary of £6k and no bonus...

Salary £6,000
Bonus £0
Dividends £84,000
Maternity Pay £623

Employee NI £100
Employer NI £848
Salary Income Tax £31
Dividend Corp Tax £17,640
Dividend Income Tax £10,519
total tax £29,138

Total In £61,485


With a bonus of 10k...

Salary £6,000
Bonus £10,000
Dividends £74,000
Maternity Pay £7,373

Employee NI £1,942
Employer NI £2,992
Salary Income Tax £3,381
Dividend Corp Tax £15,540
Dividend Income Tax £12,038
total tax £35,893

Total In £61,480


With a bonus of 30k...

Salary £6,000
Bonus £30,000
Dividends £54,000
Maternity Pay £20,873

Employee NI £4,328
Employer NI £7,280
Salary Income Tax £12,681
Dividend Corp Tax £11,340
Dividend Income Tax £12,150
total tax £47,779

Total In £63,095


With a bonus of 50k...

Salary £6,000
Bonus £50,000
Dividends £34,000
Maternity Pay £34,373

Employee NI £4,663
Employer NI £11,568
Salary Income Tax £26,081
Dividend Corp Tax £7,140
Dividend Income Tax £7,650
total tax £57,102

Total In £67,272

[Casablanca]

thanks

Thanks all for your input and advice which I've taken on board.

Yes I saw that thread lje and I will pm you thanks.
Next actions - contract review - if inside IR35 I'll stick with the umbrella
Find specialist contactors' accountant.

[questiontime]

Thanks all for your input and advice which I've taken on board.

Yes I saw that thread lje and I will pm you thanks.
Next actions - contract review - if inside IR35 I'll stick with the umbrella
Find specialist contactors' accountant.

It may be worth setting up a ltd company even if you are inside IR35 in the following scenrio:

you can declare a huge chunk of your deemed salary(for that tax year) in the qualifying 8 weeks before maternity leave. You don't need to worry about the additional NI as it anyway due. You will not have this flexibility with the umbrella. so it will be actually financially better.

Also, during the non-working year, any loss you make can be offset against future profits. If you continue to contract,you will be in a better tax position in the following year.

Just my 2p.

[Sally BFCA]

Hi Casablanca

With regards to having your contract reviewed professionally; remember that when you become incorporated (if you do) that you will need to have a new contract made with the limited company.

If your contract is outside IR35 and you proceed, I would be happy to help you. You can find my contact details on our website.

Good Luck!

Regards
Sally

[LisaContractorUmbrella]

You should also remember that a professional review of your contract is just a review of what has been written down on paper - if your contract is not a totally accurate reflection of your working practises the review will be meaningless.