Relative Newbie cant decide between Ltd & Umbrella

[Nixeh]

Hi guys,

Just seeking some advice on my situation. Ive been someone who has been in and out of work for the past year since i graduated from university and im doing some work in the IT sector before i get into the field i really want to (anyway thats useless info)

Ive been researching for the past week the benefits and downsides of using PAYE Umbrella Corporations and Ltd Companies. I was told by my agency that he cannot advice me on suggestions for umbrella corporations due to the company he works for notbeing liable to give out financial information.(seems a bit too cautionary) Anyway my search led me onto this forum where i trawled through some posts to try and find out which Umbrella corporations have good reputation with contractors. So i looked about and sent off for some quotes online and rang the 4 most promising ones that people seeemed to recommend.

What ive been saying for the quotations are as follows:
-£13.50 per hour
-40 Hours a week
-6 Month contract with a possibility of staying on
-Paid Weekly
-Leave for work 7:30-8am
-Get Home 6pm-7pm (depending on traffic)
-Roughly £15 max a week on travel (Public transport
-£6-7 a day most for food (though will be doing packed lunches most of the time)
-Might need to get a laptop for work (nothing special £300-450 budgetted for this)

With the umbrella corporations (omitting names here for fear of being called a spammer :P) i was quoted the following:
1) £347per week with 24 days paid holiday. Rough estimate they gave me with that worked in was £380 per week.

2)£379 per week (they said i could claim £9.37 per day on food, which seemed a bit high)

3)£395 a week (upto £15 per day for food(or was it overall subs, cant remember) if i was out for 10+ hours for work, £5 for under 10 hours and £5 additional if im out the door for work before 7am)

4) I asked them what was the best way of maximising my income from my above information and he suggested a Ltd, company which they could do for me (Theyre an Accountancy company) which meant i could get £420 a week out of my pay.

Now this is where the confusion came in because i wasnt really looking at Ltd. companies due to all i heard about was Umbrella and ltd are personal companies. So i asked them a few questions and these were the in a nutshell responses i got:

Q: So what does this Ltd company entail from their side?
A: They would setup a Ltd company personally for me and they would basically handle all the accountancy and tax for a fixed rate.

Q: Does this include IR35 cover?
A: No it does not because supposedly any company that offer you as part of this package shouldnt be, though he did say i could get IR35 cover from companies that are out there (didnt specify any companies by name)

Q: What about reciepts?
A: They wont need them apart from Transport but they advised i should keep any reciepts that were work related as a precautionary tactic.


So this has left me in a bit of a pickle. I personally want to go for the latter route of the limited company to maximise the amount of money i will be bringing in from my contract work, but i want to make sure that this is all above board and if there are anything else i should ask to find out critical answers which could sway my decision.

I have omitted any company names as ive seen people get labeelled for spam for doing so, though will gladly tell you the companies names in questions if this changes your recommendation due to company reputation.

Sorry if this is quite sporadic but trying to do this before i have to head out.

Thanks in advance for any help given

[pmeswani]

Hi guys,

Just seeking some advice on my situation. Ive been someone who has been in and out of work for the past year since i graduated from university and im doing some work in the IT sector before i get into the field i really want to (anyway thats useless info)

Ive been researching for the past week the benefits and downsides of using PAYE Umbrella Corporations and Ltd Companies. I was told by my agency that he cannot advice me on suggestions for umbrella corporations due to the company he works for notbeing liable to give out financial information.(seems a bit too cautionary) Anyway my search led me onto this forum where i trawled through some posts to try and find out which Umbrella corporations have good reputation with contractors. So i looked about and sent off for some quotes online and rang the 4 most promising ones that people seeemed to recommend.

What ive been saying for the quotations are as follows:
-£13.50 per hour
-40 Hours a week
-6 Month contract with a possibility of staying on
-Paid Weekly
-Leave for work 7:30-8am
-Get Home 6pm-7pm (depending on traffic)
-Roughly £15 max a week on travel (Public transport
-£6-7 a day most for food (though will be doing packed lunches most of the time)
-Might need to get a laptop for work (nothing special £300-450 budgetted for this)

With the umbrella corporations (omitting names here for fear of being called a spammer :P) i was quoted the following:
1) £347per week with 24 days paid holiday. Rough estimate they gave me with that worked in was £380 per week.

2)£379 per week (they said i could claim £9.37 per day on food, which seemed a bit high)

3)£395 a week (upto £15 per day for food(or was it overall subs, cant remember) if i was out for 10+ hours for work, £5 for under 10 hours and £5 additional if im out the door for work before 7am)

4) I asked them what was the best way of maximising my income from my above information and he suggested a Ltd, company which they could do for me (Theyre an Accountancy company) which meant i could get £420 a week out of my pay.

Now this is where the confusion came in because i wasnt really looking at Ltd. companies due to all i heard about was Umbrella and ltd are personal companies. So i asked them a few questions and these were the in a nutshell responses i got:

Q: So what does this Ltd company entail from their side?
A: They would setup a Ltd company personally for me and they would basically handle all the accountancy and tax for a fixed rate.

Q: Does this include IR35 cover?
A: No it does not because supposedly any company that offer you as part of this package shouldnt be, though he did say i could get IR35 cover from companies that are out there (didnt specify any companies by name)

Q: What about reciepts?
A: They wont need them apart from Transport but they advised i should keep any reciepts that were work related as a precautionary tactic.


So this has left me in a bit of a pickle. I personally want to go for the latter route of the limited company to maximise the amount of money i will be bringing in from my contract work, but i want to make sure that this is all above board and if there are anything else i should ask to find out critical answers which could sway my decision.

I have omitted any company names as ive seen people get labeelled for spam for doing so, though will gladly tell you the companies names in questions if this changes your recommendation due to company reputation.

Sorry if this is quite sporadic but trying to do this before i have to head out.

Thanks in advance for any help given

Firstly, you will need to keep ALL receipts if you go Limited. As this may be your first contract, you would be better off going down the route of an Umbrella. If you go Ltd. and you decide you want to go back to Permanent, it would cost you more. With Ltd, you will need to consider other forms of insurance.. (can't remember them all off hand). If you go to the homepage of this site, you will see a link to first time contractors, read that as well.

I understand you want to maximise your income, but my (non-financial) advice would be to take a hit on your first contract, test the waters to see if this is the route you really want to take and then decide at the end of the contract if you want to stay in the field. Contracting isn't for everyone... not saying it's not for you... but don't commit to starting a Ltd company until you are sure.

£1680 (Ltd) over £1388 (Umbrella) a month. It isn't worth the hassle over a contracting role to start a Ltd company. Remember, you won't necessarily see the whole £1680 if you go ltd. You may want to save some of that money for expenses and buying hardware / software / when you are out of work.

At the end of the day, you have to make the decision on what best fits your goals and objectives.

[Sockpuppet]

Hi guys,

Just seeking some advice on my situation. Ive been someone who has been in and out of work for the past year since i graduated from university and im doing some work in the IT sector before i get into the field i really want to (anyway thats useless info)

<snip>

To be honest on the rates that you suggest I'd just go Umbrella. The easiest option and your not really going to save that much going Ltd and it is a larger pain in the ass.

No they cannot run it for you as that makes it an MSC (Managed Service Company) which is used as a tax avoidance vehicle so you will get taxed paye anyway.

Also ignore the "you can claim" £10 a day claims. It means they can let you spend £10 a day unreciepted but you still have to keep reciepts and spend the money. So to claim £9 a day on food you have to spend £9 a day on food.

[pmeswani]

To be honest on the rates that you suggest I'd just go Umbrella. The easiest option and your not really going to save that much going Ltd and it is a larger pain in the ass.

No they cannot run it for you as that makes it an MSC (Managed Service Company) which is used as a tax avoidance vehicle so you will get taxed paye anyway.

Also ignore the "you can claim" £10 a day claims. It means they can let you spend £10 a day unreciepted but you still have to keep reciepts and spend the money. So to claim £9 a day on food you have to spend £9 a day on food.

Regarding the 2nd para... You can employ an accountant to raise invoices, process expenses, etc. etc. on your behalf and still be in control of the business. But I do understand what you are saying. ;-).

I agree with the first and third para. However, if the OP goes Ltd, he will need to get Dispensation (sorry, can't remember if this is the correct spelling) as well as VAT registration, Employer liability Insurance and other insurances. For the amount being earned, it is worth holding off until a higher rate is being earned. Possibly £30 - £35 minimum rate over a minimum 6 months?

[ASB]

Also ignore the "you can claim" £10 a day claims. It means they can let you spend £10 a day unreciepted but you still have to keep reciepts and spend the money. So to claim £9 a day on food you have to spend £9 a day on food.

Strictly that is not necessarily true.

It is just possible that the umbrella have agreed scale rates with HMRC in which case the expenditure does not actually need to be incurred (but some expenditure does need to be incurred). Of course this is different to a dispensation though agreed scale rates would normally be covered by one.

http://www.hmrc.gov.uk/manuals/eimanual/EIM05200.htm

[LisaContractorUmbrella]

Strictly that is not necessarily true.

It is just possible that the umbrella have agreed scale rates with HMRC in which case the expenditure does not actually need to be incurred (but some expenditure does need to be incurred). Of course this is different to a dispensation though agreed scale rates would normally be covered by one.

http://www.hmrc.gov.uk/manuals/eimanual/EIM05200.htm

True they may have agreed scale rates but the expense still has to be allowable and it still has to be incurred "And scale rate expenses payments should only be paid on days when the employee has incurred an allowable expense. A “scale rate payment” which is paid irrespective of whether the employee has incurred an allowable expense is simply a payment of earnings"

[ASB]

True they may have agreed scale rates but the expense still has to be allowable and it still has to be incurred

That's what I said - some expenditure has to be incurred. If your brolly happens to have agreed a scale rate of 100 quid for an overnight stay then paying a tenner to kip in the car at the services will cover it. Bingo 90 quid tax free and a sore neck.

Certainly one of the brollys HAS agreed scale rates, but I don't know which one.

[LisaContractorUmbrella]

That's what I said - some expenditure has to be incurred. If your brolly happens to have agreed a scale rate of 100 quid for an overnight stay then paying a tenner to kip in the car at the services will cover it. Bingo 90 quid tax free and a sore neck.

Certainly one of the brollys HAS agreed scale rates, but I don't know which one.

And that is what the IR has a problem with. From their website:

"However, it is important that you only apply that treatment to appropriate items. In general, scale rates are only appropriate for expenses which are widely incurred, in broadly similar amounts, but for which it is often difficult to get receipts. For example subsistence, or the expenses of cleaning uniforms or protective clothing (see EIM32465). Scale rates should be set at a fairly modest level which, taking one day with another, will be enough to cover the relevant expenses. They should not be pitched at a level to cover the highest amount that an employee might spend"

If this is applied properly then it should not be possible for contractors to 'make' money from scale rates.

[ASB]

And that is what the IR has a problem with. From their website:

"However, it is important that you only apply that treatment to appropriate items. In general, scale rates are only appropriate for expenses which are widely incurred, in broadly similar amounts, but for which it is often difficult to get receipts. For example subsistence, or the expenses of cleaning uniforms or protective clothing (see EIM32465). Scale rates should be set at a fairly modest level which, taking one day with another, will be enough to cover the relevant expenses. They should not be pitched at a level to cover the highest amount that an employee might spend"

If this is applied properly then it should not be possible for contractors to 'make' money from scale rates.

Agreed, it was not exactly an ideal example. Choosing to stay in the local YMCA might have been a more viable one. However the public sector in some areas does seem to have agreed some fairly generous scale rates. Of course you are quite right that it should not be possible to "make" money from scale rates. But this is overall not individual and a user of scale rates is supposed to be able to keep them justified.

[vhadiant]

To be honest on the rates that you suggest I'd just go Umbrella. The easiest option and your not really going to save that much going Ltd and it is a larger pain in the ass.

Agreed, at that rate Umbrella is probably the better option. In fact I think you'll be better off going permie with the annual leave, sick leave + benefit.