Ltd vs Umbrella & IR35

[agan]

Hi folks I'm new to contracting, just secured my first contract and have done my research over the last few days into the vehicle through which I should operate and the IR35 implications (along with all the tax/accounting calculations to see which is more tax efficient for me) but need help with an issue.

As you can imagine, IR35 is a concern for me as being found 'inside' by Hector is a real possibility. I've asked the agency for a copy of the contract to get it checked by myself and a review service like QDOS but they've said that contracts are only sent out once I've given them details of a Ltd co/umbrella co and am ready to sign it. This is a problem if I start a Ltd co, sign the contract and find out the contract and working practices point towards being 'inside' IR35 as the difference in net pay would only be £1.5k a year if I pay full PAYE and NI vs the umbrella route. One of their senior folk did say its definitely 'outside' IR35 and has been drafted by their lawyers rather than being cobbled together and they've reiterated their stance via email. Problem is, they said the client will not accept a subst. and presumably this is reflected in the contract. You can see why I don't share their conviction anymore that the contract is outside IR35 and my immediate gut feeling is that it's inside IR35.

The lack of subst. has shifted the contract into the 'borderline' category and the tests I've done online reflect this.

What do you guys reckon? Go for the umbrella route, check the contract & working practices then switch to Ltd a month or two later if it seems to be 'outside' IR35 OR bite the bullet, go Ltd, get it checked by QDOS (but I'd have to assess the WP as well which can only be done after starting at client's premises) and take out IR35 insurance?

Contract works out 28k p/a btw.

[Clare@InTouch]

Agents will always tell you the contract is outside, and only sometimes are they correct. For a start it's the working conditions that matter, not what's written in the contract.

I'd ask for a draft blank version of the contract before going ahead. I can't see any reason why they wouldn't supply one.

Which agency is it with? I may have seen a contract and could give a view on the one I've seen.

[NotAllThere]

I'd say go ltd regardless. That way you have control over your money, rather than someone else. Note: if you're with a brolly for only one contract, you cannot claim T&S expenses for that contract.

[Sally@InTouch]

Note: if you're with a brolly for only one contract, you cannot claim T&S expenses for that contract.

Has something changed here? The Umbrella I used to work for did not have this policy. Providing that national minimum wage rates were met, one contract would suffice...

[agan]

Thanks for your replies.

Yes I'm aware of the 'single contract claiming expenses with umbrella rule' but won't incur significant expenses apart from short distance commuting so it isn't a problem if I go with an umbrella.

Clare - can I send you a PM? Can't seem to find the option though haha

[Nixon Williams]

Has something changed here? The Umbrella I used to work for did not have this policy. Providing that national minimum wage rates were met, one contract would suffice...

It is nothing to do with the policy of the umbrella company.

Travel expenses may only be claimed for travel to a temporary location, if this is your only location whilst with the umbrella company, or indeed with a limited company, then the location cannot be temporary, it is permanent. As such Travel, subsistence etc should not be claimed.

Alan

[malvolio]

Has something changed here? The Umbrella I used to work for did not have this policy. Providing that national minimum wage rates were met, one contract would suffice...

They're wrong then, and breaking the law. One workplace doesn't represent a temporary workplace for an umbrella user, it is a permanent one (the dual joys of a contractor paying someone to manage their money while being treated as an employee). When you get another contract elsewhere with the same umbrella, then you can say it was temporary.

[northernladuk]

Have you read the guides and the stickies on this site first so you can start to form your own opinion first?

For example?

http://forums.contractoruk.com/umbre...composite.html

BTW

The lack of subst. has shifted the contract into the 'borderline' category and the tests I've done online reflect this.

If you get QDOS to review your contract (which I hope you are doing) they will return this is as a flat fail, not borderline.

[agan]

Northernlad - yes I have. Much more than that. I've also considered the subst. point and came to the conclusion (see my gut instinct point above) that it's definitely inside IR35 and not outside as the agency claims. The online tests say its borderline but the fact the client expects personal service suggests it isn't borderline and a pretty easy case for Hector to win.

Seen as though it would be very difficult to arrange IR35 insurance with the contract, the only matter left to consider is whether I want to pay an umbrella co to deduct PAYE, NI and their fee without worrying about any company and tax affairs or whether I want to set up a Ltd co and benefit from the 5% deduction in the IR35 deemed salary calculation.

[northernladuk]

Northernlad - yes I have. Much more than that. I've also considered the subst. point and came to the conclusion (see my gut instinct point above) that it's definitely inside IR35 and not outside as the agency claims. The online tests say its borderline but the fact the client expects personal service suggests it isn't borderline and a pretty easy case for Hector to win.

Seen as though it would be very difficult to arrange IR35 insurance with the contract, the only matter left to consider is whether I want to pay an umbrella co to deduct PAYE, NI and their fee without worrying about any company and tax affairs or whether I want to set up a Ltd co and benefit from the 5% deduction in the IR35 deemed salary calculation.

Ok well that is up to you. Personally I went Umbrella for the first 6 months just because I had enough on my plate to deal with learning the contracting ways without failing at my finances as well. Spent 6 months getting used to the accounting and then went LTD. Many people say it wasn't the most efficient way to go but 6 months will be nothing in the years of contracting to come.