Moving from Umbrella to Limited at contract renewal

[BBCSL]

Hi All,

Apologies if this has been covered elsewhere but I have had trouble finding a suitable answer on the forums.

I have been contracting for the past six months using an umbrella company and my contract is currently up for renewal. As part of the renewal I have asked the agency for the new contract to be with my newly formed Limited Company. The agency has advised as I will be providing services for the same end client my contract will immediately be higher risk of being deemed to be inside IR 35 in the event of a HMRC investigation.

Is there any truth to what I have been told by the agency ?

My understanding is that the terms of the contract and working practices are the determining factors in deciding whether my contract is inside/outside IR 35 so the fact I have previously contracted with the client using an umbrella should be irrelevant.

I imagine the move from Umbrella to Limited at contract renewal is fairly common in the contracting game and would greatly appreciate any advice.

Thanks in advance !

[Greg@CapitalCity]

My understanding is that the terms of the contract and working practices are the determining factors in deciding whether my contract is inside/outside IR 35 so the fact I have previously contracted with the client using an umbrella should be irrelevant.

If you had previously worked at the clients address as an employee of the client, then I would agree with the agency. However in your previous engagement you were a contractor to the end client (using an umbrella) so on the face of it I would have to disagree with your agency. I can't think of a previous case where the strength of a ltd company contractors IR35 position was weakened due to previously contracting for the end client through an umbrella.

[Craig@Clarity]

If you had previously worked at the clients address as an employee of the client, then I would agree with the agency. However in your previous engagement you were a contractor to the end client (using an umbrella) so on the face of it I would have to disagree with your agency. I can't think of a previous case where the strength of a ltd company contractors IR35 position was weakened due to previously contracting for the end client through an umbrella.

WGS

It would be like saying that you're at greater risk if you renewed any contract if you are currently working as a freelancer.

[LisaContractorUmbrella]

Being with a brolly previously won't make any difference to your IR35 status - check here to find out what will http://www.hmrc.gov.uk/ir35/guidance.pdf

[Andrew at Boox]

We regularly have contractors moving from an Umbrella service to their own Limited Company. Maybe the agency is against it because they may lose out on a referral fee arrangement with the Umbrella provider.

That's nothing for you to be concerned with though. Your priorities are to minimise your tax and remain flexible as a freelancer. With your own Limited Company you should be able to easily move between contracts and agencies.

[Wanderer]

Is there any truth to what I have been told by the agency ?

As the others have said, the agency are taking nonsense as usual. To my mind, agencies fall into two groups:

1. The ones that are stupid and don't know what they are talking about
2. The ones that think we are stupid so they can bulltulip us to their advantage

The IR35 rules do have a case to catch the situation where you were a permie and you go contracting back to your old employer but this is different as you have always been a contractor and have never been employed by the client.

You must still get your contract and working practices properly reviewed for IR35 compliance though.

[tractor]

...

Pro Tip

Don't take any of the following advice from an agency:

Legal
Financial
Commercial
IR35
Opting in/opting out

In fact, just take any advice with a pinch of sodium chloride.

[lithium147]

It doesn't matter whether you are in or outside IR35 to the agency anyway. Non of there business..

[BBCSL]

Thanks for the advice guys much appreciated !

The agency has come back to me with the following -

"If you are caught by IR 35, you will be required to make PAYE and NI deductions and pay these to HMRC. The contract that Agency XXXX will issue asks for indemnification against these potential tax and NIC contributions."

I can see the agency is obviously trying to cover themselves in the event my company is investigated by the HMRC and found to be inside IR 35. My understanding is that the HMRC would firstly pursue the company and then the directors for PAYE / NI so this should not be of any concern to the recruitment agent.

Thoughts ?

[malvolio]

Thanks for the advice guys much appreciated !

The agency has come back to me with the following -

"If you are caught by IR 35, you will be required to make PAYE and NI deductions and pay these to HMRC. The contract that Agency XXXX will issue asks for indemnification against these potential tax and NIC contributions."

I can see the agency is obviously trying to cover themselves in the event my company is investigated by the HMRC and found to be inside IR 35. My understanding is that the HMRC would firstly pursue the company and then the directors for PAYE / NI so this should not be of any concern to the recruitment agent.

Thoughts ?

Someone needs to understand S44-47 ITEPA 2003...

Basically that's the one that says if a worker defaults on the their tax payments, the liability moves up to the next entity in the chain. Normally that would be the agency , which is why they don't deal with sole traders, only YourCo or an Umbrella. And as you say, if YourCo defaults, they go after the directors So, as usual, the agency is telling a bit of the truth but not all of it; there is no risk to them at all.