Bye Bye to Brolly??

[NotAllThere]

Or blindly follow the herd

... by going brolly.

When I were a young contractor, there were no brollies. It was ltd or nothing. We had only Freelance Informer for advice, rather than the wealth of information now available online. Contact with accountants and agents was via phone and fax - no email.

Somehow we managed. Running a ltd co then wasn't difficult. It certainly isn't now.

Anyway, for the original poster: reasons to go brolly.

You're not sure contracting is going to be a long term venture.
You know you're IR35 caught and always will be and have no way of getting out of it.
You are on a very low rate.
You are stupid - you can't work out how to reduce/eliminate IR35 risk
You are fearful - you believe HRMC/government spin
You are inept - you can't even communicate well with your accountant

Reasons not to go brolly:

You pay more tax than you need to
You are not in control of your fees
You are not in control of your expenses policy
You rely on an uninterested 3rd party to handle your credit control

[mace]

Pros & Cons

I had my own ltd company for almost 10 years. The major problem I had was with the accountants, doing my own bookkeeping was easy. During the 10 years, I had 5 different accountants.

Accountant 1 made a big thing about how he knew a lot about contracting and how important it was, and in return charged a high rate. After his startup advice, his subsequent advice didn't cover the higher rate, so I moved to Accountant 2.

Accountant 2 was a normal high st accountancy firm. They started off with a reasonable rate but ramped it up at above inflation rates each year.

I moved to Accountant 3 when Accountant 3 left Accountant 2 and set up his own practice. Similar story in the end to Accountant 2, he obviously learnt the technique from his old role.

I then moved to Accountant 4 and decided to start paying per service rather than on a retainer basis and do my own bookkeeping. This kept the costs down to a lot lower a fee. However, I realised that Accountant 4 wasn't competent and took a long time to do the simplest of tasks.

Finally, I moved to Accountant 5 on a similar basis to Accountant 4. The costs were low, the advice negligible but the service was good until I wrapped up my ltd company. At this point Accountant 5 asked me for a fairly large rate to close the company but in return he'd provide a hassle free service. I verbally agreed and he did practically nothing other than to send a form, which I filled in to the Inland Revenue and a letter to Companies House. I queried and then refused to settle his entire bill. He then wrote to Companies House and prevented the closure of my company until I settled the bill. This standoff went on for almost a year with him refusing to take me to court. In the end, I provoked him enough to take me to court to break the standoff. The court decided that there was no contract but that the accountant was entitled to charge for the services that he did provide. As reading emails at a rate of £130 per hour exceeded the original value of the contract, it was found in his favour. So I ended up paying over £1200 for a guy to send a couple of letters and blackmail me for months. Needless to say his accountancy body did feck all to try to resolve the matter, backing the accountant all the way.

After my experience with Accountant 5, I'd be wary of engaging another accountant. That said, there are a lot of tax advantages to running your own ltd. company.

[DocP]

Not Sure

Thanks for the advice. I wasn't expecting to still be on contract which is why I used a brolly to start with. Now it seems that I'm going to be doing this for a while. I can't see any reason to leave current client. It's a good place to be in the current downturn.
I'll check my IR35 status & get a good accountant. Who's good at doing the IR35 thing?

[DiscoStu]

Thanks for the advice. I wasn't expecting to still be on contract which is why I used a brolly to start with. Now it seems that I'm going to be doing this for a while. I can't see any reason to leave current client. It's a good place to be in the current downturn.
I'll check my IR35 status & get a good accountant. Who's good at doing the IR35 thing?

Qdos or Bauer & Cottrell.

[expat]

Yeah, I mean it takes minutes every month to do all the paperwork and keep things up together, doesn't it? And all for a measly 15% increase in net take home, deciding your own expenses policy and immunity from the AWD.

No, brolly's are clearly a no brainer... ummm....

There is an elephant-in-the-room sense of unreality about most of these discussions. People talk of the advantage of going Ltd, and of being outside IR35. This is monumentally imprecise: what they are really talking about is, plain and simple, receiving some of their income without paying NICs on it.

It is indeed not much effort to run a Ltd Co, though it is some effort and expense. But it does not in itself save you very much. The only thing that will save you much money is diverting a substantial part of your income away from being treated as earned income.

[Shimano105]

Accountants - expensive and inconsistent in their advice. If I didn't know better I'd say most were clueless.

IR35 - pay people to tell you what you want to hear i.e. you are outside it. But you are on your own if the Revenue decide otherwise.

IR35 - you've paid someone to say your contract needs re-working - now try and convince the agency. Of course we're told that this will happen instantly and takes no time whatsoever. But I need to start next Monday and we're still arguing the toss.

Insurance - PI, EL - are these free?

Woops, IR decide they want to investigate you. You are confident that you will win cos of the extra insurance that you paid for. But how does going to court impact on your earnings time and mental health?

Salary - live on tiny wage and pay divvys - what a pain. Yes you can play around with Director's loan accounts and such but it's yet another 'painless' time overhead to piddle with.

Ltd Co runners - strangely pompous, insulting and defensive when someone offers an opinion outside of their herd mentality. Can't handle being challenged.

Nah, not heard anything here that would convince me otherwise that Ltd cos are just a way of massaging sad IT egos into thinking that they have 'Company Director' status.

I had a Ltd for 8 years and that title soon wore thin when all the hassle hit home.

[NotAllThere]

This is monumentally imprecise: what they are really talking about is, plain and simple, receiving some of their income without paying NICs on it...

Yep. And at 12% ERNIC that's quite signficant. Of course the other way you save tax is by keeping money in your company, rather than paying it all out in one go, thereby spreading the tax burden over several years. And the third way is dividends paid to your spouse, using up his/her allowances.

Accountants - expensive and inconsistent in their advice. If I didn't know better I'd say most were clueless.

And somehow brolly companies are better?

IR35 - pay people to tell you what you want to hear i.e. you are outside it. But you are on your own if the Revenue decide otherwise.

Utter nonsense.

IR35 - you've paid someone to say your contract needs re-working - now try and convince the agency. Of course we're told that this will happen instantly and takes no time whatsoever. But I need to start next Monday and we're still arguing the toss.

Hmm. You know, there's a reason why there is such a hurry. It's not the client needing you yesterday, it's the agent wanting to force his contract onto you. Even when IR35 didn't exist contracts people still negotiated contracts and got them legally reviewed.

Insurance - PI, EL - are these free?

Are brollies? And you'll still need PI yourself even through a brolly for many contracts. Further the extra you pay on these insurances will be considerably less than the tax savings.

Woops, IR decide they want to investigate you. You are confident that you will win cos of the extra insurance that you paid for. But how does going to court impact on your earnings time and mental health?

There's the fear reason kicking in again . To be fair, this is something that should be considered.

But consider this:

Woops. Brolly company goes bankrupt. Bye bye money. Woops agency decides not to pay you. Brolly company don't care - they only pay you when they've received the money you earn. Hmm. How does that impact your earnings time and mental health?

Salary - live on tiny wage and pay divvys - what a pain. Yes you can play around with Director's loan accounts and such but it's yet another 'painless' time overhead to piddle with.

Utter nonsense. You can pay divvies every month. What time overhead?

Ltd Co runners - strangely pompous, insulting and defensive when someone offers an opinion outside of their herd mentality. Can't handle being challenged.

pot, kettle, black

You protest too much, your arguments are tenuous at best. I suspect you are trolly brolly owner.

[expat]

Yep. And at 12% ERNIC that's quite signficant. Of course the other way you save tax is by keeping money in your company, rather than paying it all out in one go, thereby spreading the tax burden over several years. And the third way is dividends paid to your spouse, using up his/her allowances.
....

And the fourth way is by making pension contributions. Unlike the others, this is IR35-proof, and actually doesn't need a Ltd Co either: just a brolly that will do it (and if they won't, that is the tail wagging the dog).

[Shimano105]

Brollys can go bust and that also worries me.

Agencies? Well them going bust would affect a Ltd co as well would it not?

I'm still not convinced that a paid 3rd party can guarantee that you are outside IR35 and I do not want the hassle of going to court. FFs I am going to work not fighting an unwinnable battle for the comrades.

As for the agency driving the contract signing I refer you to the original situation - you are requested to start on site Monday morning (this does hapen you know) - last thing I want to do is start piddling about with contract clauses (beyond notice periods). And paying 3rd parties as well. Jeez this is sounding so simple already!

No, you are falling into the contractor vanity trap of being a 'Director' - I'll bet you have all your VAT reg and Incorporation certs all over your wall as well

Now please don't tell me that you fell for the brass door plaque trick for IR35 avoidance as well.. did you?

[NotAllThere]

...
No, you are falling into the contractor vanity trap of being a 'Director' - I'll bet you have all your VAT reg and Incorporation certs all over your wall as well

Now please don't tell me that you fell for the brass door plaque trick for IR35 avoidance as well.. did you?

Wrong on all counts.

I'm a disinterested party. I don't live or work in the UK, so IR35 is irrelevant to me. Dividends here don't come with a nice tax credit, so no divvy income. And tax is based on households, so no spousal allowance to use up. Also, because of local tax law, I can't use my company as a piggy bank to level out my tax rate.

You are offering bad advice, based on severely flawed reasoning, and nothing you've posted has altered my opinion that you have an inability to recognise that your bad experience was entirely down to your own incompetence, lack of understanding and foolishness. You definitely belong to the small minority where brolly is the only sensible option.