Always under IR35 - should I still go umbrella?

[zecontractor]

Hi all,

I have recently finished my first contract and I'm about to start my second one. I'm using ContractorUmbrella and quite happy with them. However reading around in the forums it seems that I might be able to save money by going the Ltd route.

All my contracts fall under IR35 given my working practices, even if the contract is worded otherwise. I will always be a very clear cut case of a disguised employee.

Does it make sense to go for a Ltd? On the sticky it says I can earn 5% more. Is that 5k more at the end of the year on a 100k contract?

[philip@wellwoodhoyle]

If your agency/client are VAT registered, you could benefit massively from having your own company, being VAT registered and adopting the flat rate scheme.

You will be able to claim more expenses against tax, i.e. computer/office equipment, mobile phone, accountancy, bank charges, etc. to fully benefit from the 5% expenses allowance.

You may derive timing benefits - i.e. deliberately planning the timing of your invoices and customer payments to fall into different tax years to minimise H/R tax and impacts of child benefit reductions, etc.

Considering that accountancy charges and other costs of running a ltd co are usually similar to umbrella fees, I'd say the benefits outweigh and Ltd is the way to go if you're contracting long term.

[northernladuk]

Try doing a search in google or look on contractorcalculator. There will be calculators out there that will show what you can take home using the different methods...

You could also try reading the stickies....

[VectraMan]

Does it make sense to go for a Ltd? On the sticky it says I can earn 5% more. Is that 5k more at the end of the year on a 100k contract?

My understanding is the deemed salary is based on 95% of the sales, which means you'll have £5K left over as pre tax profit at the end of the year. So 20% Corporation Tax, means a £4K dividend - and as you'll be well into the upper limit, that'll become £3K. So if you're taking home something like £60-70K, is the extra £3K worth all the hassle of running a Ltd.? I'm not sure I'd bother.

[kingcook]

My understanding is the deemed salary is based on 95% of the sales, which means you'll have £5K left over as pre tax profit at the end of the year. So 20% Corporation Tax, means a £4K dividend - and as you'll be well into the upper limit, that'll become £3K. So if you're taking home something like £60-70K, is the extra £3K worth all the hassle of running a Ltd.? I'm not sure I'd bother.

Hassle? Umbrella co. turned out to be more hassle for me. I could never get how they worked things out, always double checking their figures, asking them questions. It's pretty simple understanding a limited company in comparison.

Besides, £3K is £3K. If you can afford to turn your back on that amount of money, you must be wiping your arse with £50 notes anyway

[BolshieBastard]

Just say 'No!' to brollies.

You arent in charge of 'your' money when using a brollie and, why add another link in the chain that could go bust? If you are intending contracting long term, go limited and be in control (responsible) of your money.

[VectraMan]

Hassle? Umbrella co. turned out to be more hassle for me. I could never get how they worked things out, always double checking their figures, asking them questions. It's pretty simple understanding a limited company in comparison.

But not everybody's as anal as you. I have to say one of the positive things about being a permie last year was the way money just turned up in my account at the end of each month without me having to do anything - kind of refreshing after years of timesheets, invoices, VAT, PAYE, dividend declarations, expenses, annual returns, liability insurance, IR35 reviews, etc. etc.

[LisaContractorUmbrella]

Just say 'No!' to brollies.

You arent in charge of 'your' money when using a brollie and, why add another link in the chain that could go bust? If you are intending contracting long term, go limited and be in control (responsible) of your money.

Or work with a really good umbrella company

Oh hang on a minute the OP already is

[IR35 Avoider]

Crunch accounting will let you run a company for less than an umbrella costs, and flat-rate VAT will then (depending on your rate) probably more than pay the accounting fee, so in effect you get paid by HMRC to run the company.

There's very little hassle, everything is automated, no paper whatsoever going back and forth between me and accountant or me and HMRC. All filing done online by Crunch, VAT collected by direct debit by HMRC. Cater Alllen banking transactions automatically pulled into accounts by Crunch.

One thing to watch out for, if you want a salary more than the tax free amount then Crunch may charge you £11 more a month than their advertised fee. That probably still leaves them cheaper than everyone else though.

[zecontractor]

Thanks for all the answers, I think I will go for Crunch.

However I have another question. When I joined CU, they told me I had to get at least two contracts with them if I wanted to have expenses. They said that if I only took one contract with them it would be as if I had been a permanent worker there, so I wouldn't be able to expense anything.

For the purpose of having HMRC off by back, does an extension count as a second contract? And what about if I take another contract, then agree with the agency that after a month we will terminate the contract and do another immediately under my new Ltd?