Umbrella vs Ltd and IR35

[rb621]

OK I've been a contractor for many years and operated a Ltd. company for much of that, then switched to umbrella to play it safe (ok I succumbed to the fear of IR35). I've enjoyed the easy life but as every contractor I've met is running various levels of, how shall I say, "tax reduction" schemes ranging from "Off-shore 85% income and I claim child benefit + maximum working tax credit for my 5 children", or "husband and wife eBay shops which really HMRC would consider seperate businesses if ever inspected", I do wonder what the hell I'm doing on PAYE these days.

It seems I really need to switch back to Ltd to maximise my income, adjust my contracts and hope and pray they really are outside IR35, minimize my salary and maximize my dividends and now today, make sure my income is below £44k so i get some child benefit.

My question is, are most of you out there running Ltd. and assuming/running things outside IR35? And how far do you push things (yes I met one guy who claimed he did the offshore thing and was claiming £1k a month in benefits).

I'm seriously looking at setting up a limited company via PCG. Any thoughts here too?

By the way, what exactly are the penalities if HMRC deem your contract was within IR35?

Thanks.

[northernladuk]

OK I've been a contractor for many years and operated a Ltd. company for much of that, then switched to umbrella to play it safe (ok I succumbed to the fear of IR35). I've enjoyed the easy life but as every contractor I've met is running various levels of, how shall I say, "tax reduction" schemes ranging from "Off-shore 85% income and I claim child benefit + maximum working tax credit for my 5 children", or "husband and wife eBay shops which really HMRC would consider seperate businesses if ever inspected", I do wonder what the hell I'm doing on PAYE these days.
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I would seriously argue that point. Many contractors will do what we can within the system i.e. divis but every contractor certainly does not attempt to fudge the system to the point of being a target.

I wonder what the hell you are doing on PAYE when there are perfectly legal ways of maximising your revenue. I would also ask why the hell are you looking at such dodgy methods when you are too afraid to even pick on that is totally valid.

These schemes require a good understanding of the process and laws. If you can't manage IR35 then I would stay totally clear.

[Clare@InTouch]

By the way, what exactly are the penalities if HMRC deem your contract was within IR35?

Thanks.

95% of the income from that contract would be deemed to be salary which would result in a tax bill for the personal tax, NI and Employer's NI thereon. Plus interest and penalties. Penalties can go up to 100% of the tax due if it's deliberate tax evasion. If you've done your best to be sure of your position, such as getting the contract reviewed by an expert, then the penalty is likely to be less.

[rb621]

I'm not looking at any of these dodgy methods - read the post - this is what others I've come across are doing. In fact I think paying your taxes is the right thing to do.

Claire, thanks for you helpful info.

I would seriously argue that point. Many contractors will do what we can within the system i.e. divis but every contractor certainly does not attempt to fudge the system to the point of being a target.

I wonder what the hell you are doing on PAYE when there are perfectly legal ways of maximising your revenue. I would also ask why the hell are you looking at such dodgy methods when you are too afraid to even pick on that is totally valid.

These schemes require a good understanding of the process and laws. If you can't manage IR35 then I would stay totally clear.