A few contractor newbie question re tax and IR35

[Guest22]

I'm a software developer and I've just recently entered into the contracting market and started my first 3-month contract two weeks ago for a large software consultancy firm. I have secured another 12-month contract with a tier-1 investment bank beginning next month.

I've just opened today a business account and I am going to be doing most of the accounting myself using Barclays' MyBusinessWorks, which is powered by FreeAgent. My best friend is a very good chartered accountant, so he'll be assisting me with the accounting.

However, I have a couple of initial questions. Barclays suggested to me today to terminate my Company Secretary appointment if they don't do anything as they are no longer required for a limited company. However, this person is my mother and I was thinking of assigning some shares to her and paying her dividends to optimise the tax. It's a very similar situation to this thread.

Is it worth keeping my mum on as Company Secretary for this purpose? She's a nurse on less than £30k, so well below the higher tax threshold. I also saw from <snip> that earnings over £100k are taxed heavily, and splitting dividends or paying someone else a salary is a good idea. However, I'm not clear on what it means by £100k earnings. Is this my net income from dividends and salary? Or is it my total turnover? If the latter, I'll be well over; if the former, I will be on the cusp most likely.

However, I understand I can reduce my earnings considerably 'on paper' by offsetting expenses against the turnover. I am going to be renting a property in London for the purpose of the contract while keeping my owned property in Surrey unoccupied. Does this mean I can offset all rent and utility bills against the tax? Is this what they call a 'tax deductible expense'?

Also, I did the <removed>, and my new contract next month is borderline. I've already e-mailed the agency to see about amendments, but is it worth taking out IR35 cover which is presented at the end of the test? If so, any companies to recommend/avoid? A quick Google search brings up this one. Is it worth getting my contract looked at by a professional - I saw one mentioned in another topic on here.

And one more quick question - I have expenses for my limited company dating back to 2004, mainly website hosting fees and suchlike, yet the company hasn't been trading at all. I've just kept the website up and running all this time. Can I retrospectively include all these expenses in my accounts and offset them against new tax?

Thanks for any help with my noob questions. A lot in there, but hopefully it will get me on the road to contracting freedom!

[psychocandy]

I'm a software developer and I've just recently entered into the contracting market and started my first 3-month contract two weeks ago for a large software consultancy firm. I have secured another 12-month contract with a tier-1 investment bank beginning next month.

I've just opened today a business account and I am going to be doing most of the accounting myself using Barclays' MyBusinessWorks, which is powered by FreeAgent. My best friend is a very good chartered accountant, so he'll be assisting me with the accounting.

However, I have a couple of initial questions. Barclays suggested to me today to terminate my Company Secretary appointment if they don't do anything as they are no longer required for a limited company. However, this person is my mother and I was thinking of assigning some shares to her and paying her dividends to optimise the tax. It's a very similar situation to this thread.

Is it worth keeping my mum on as Company Secretary for this purpose? She's a nurse on less than £30k, so well below the higher tax threshold. I also saw from <snip> that earnings over £100k are taxed heavily, and splitting dividends or paying someone else a salary is a good idea. However, I'm not clear on what it means by £100k earnings. Is this my net income from dividends and salary? Or is it my total turnover? If the latter, I'll be well over; if the former, I will be on the cusp most likely.

However, I understand I can reduce my earnings considerably 'on paper' by offsetting expenses against the turnover. I am going to be renting a property in London for the purpose of the contract while keeping my owned property in Surrey unoccupied. Does this mean I can offset all rent and utility bills against the tax? Is this what they call a 'tax deductible expense'?

Also, I did the <removed>, and my new contract next month is borderline. I've already e-mailed the agency to see about amendments, but is it worth taking out IR35 cover which is presented at the end of the test? If so, any companies to recommend/avoid? A quick Google search brings up this one. Is it worth getting my contract looked at by a professional - I saw one mentioned in another topic on here.

And one more quick question - I have expenses for my limited company dating back to 2004, mainly website hosting fees and suchlike, yet the company hasn't been trading at all. I've just kept the website up and running all this time. Can I retrospectively include all these expenses in my accounts and offset them against new tax?

Thanks for any help with my noob questions. A lot in there, but hopefully it will get me on the road to contracting freedom!

Are you sure you dont want to pay an accountant? Might be best.

Giving shares to your mother. Not a good idea because it will be seen as income shifting. Ask your accountant when you get one. Are you married? If so, no problem doing this with the wife.

Renting. Yes, allowable expense.

Yes, get your contract looked at by someone like QDOS. Do you have liability insurance etc? QDOS do this and used to do free contract reviews if you had insurance with them. Did you say you'd already started contract though? If so, too late they aint going to change it retrospectively.

Yes, IMHO, IR35 insurance is wise. Join PCG or get cover with QDOS.

Expenses from 2004. Possibly taking the piss a bit. Ask accountant.

[northernladuk]

You should be asking your chartered accountant friend these questions, not a board full of random strangers. Better still get yourself a proper contractor accountant that is dedicated to help you. You have a legal responsibility to get your accounts right. Your friend won't be so friendly when you mess up and turn to him to get you out of the mire.

Read the guides on the right, you are missing some pretty fundamental points about contracting so need to understand it better. The guides cover everything from basic start up points to detailed information on complex legislation on IR35 and 24 month rules.

Do not give shares to your mum. Period.

Do not claim expenses from 2004. How do you have an LTD from 2004 when you just started contracting? Either way, don't take the piss. HMRC will be all over you like a rash and with no accountant and no basic knowledge of running your business they will hang you out to dry.

Ask an accountant about renting. It isn't black and white and getting caught cheating the system will be very painful.

Are you sure your 12 monther is a contract and not one of thes permcontractor things?

Read guides, get a proper accountant and all will become much clearer. Don't cut corners and don't try and rip your company off.

[stek]

I'm a software developer and I've just recently entered into the contracting market and started my first 3-month contract two weeks ago for a large software consultancy firm. I have secured another 12-month contract with a tier-1 investment bank beginning next month.

Two contracts at once?

[Kelstar]

Long winded but hope this helps!

Welcome!

Firstly I'd listen to what the previous posters have advised and just bite the bullet and get yourself a good contractor accountant. I can recommend Nixon Williams but there are others that come recommended in previous threads.

Secondly, being a CA myself, I can say I don't know my ar$e from my elbow when it comes to tax accounting, two different things. I also have the personal opinion that friendship/family and business don't mix so I would avoid this if I were you. I get people asking for advice all the time and tell them politely to speak to a specialist in their field of enquiry.

Your point around income distribution, as said above pretty certain this is tax evasion and that’s illegal.

Accommodation expenses are allowable against your profit and will reduce your corporation tax liability on any retained profits but there are rules against this. Perhaps check out some of the free guides on this site, look for contractor guides on the likes of Nixon Williams website or alternatively follow everyone's advice and get a good contractor accountant.

In terms of claiming for the website and hosting costs, if you had filed accounts in the previous years you could have carried forward the trading loss and offset it against future profits, therefore reducing your CT bill. However I am assuming you haven't done that so in that case I'd forget it.

I have Qdos PI insurance and through this I receive 3 free IR35 contract reviews per year. This works out well for me as Qdos are also my IR35 insurance provider. PCG is another alternative. Now some may say you don't need this due to HMRCs prior rate of success in court but I air on the side of caution and have it anyways. I will only cover you however if your contract and working practices are in lines and consistent with being outside IR35. Just having the wording in your contract amended will not save you.

In terms of the over £100k mark, I think you are referring to the 50% tax band for earnings over £150k in which you also lose your annual allowance. NB, there is a difference in your retained profit - subject to corporation tax, and your personal earnings ie. Those which you take out of the company. 50% only applies to the later.

This is being debated in the press and between the political parties at the moment and looks set to be removed and replaced with a wealth tax ie. Mansion tax. I don't know too much on this topic but I would wait to see what comes out of the budget review at the end of the month before you get worried about it. If you have earned over that amount you've already incurred it so no point worrying, its done now, if you haven't then sit down and plan things for next fiscal year.

Goodness I have rattled on. Re: bank account, have you paid anything into your personal account which should have went to your business bank account (if you have just set it up)? In this case get on to a contractor accountant and get the paper work and distribution corrected as it may be viewed as personal earnings and not company income.

Take this in the best possible way, and it is intended to be polite, you can approach running your business in a couple of ways. I personally, choose not to rip the mick and try and evade tax through dodgy loop holes and the like. Stay within the lines of the law, operate wisely and save yourself the tax man coming knocking one day with a big fines, backdated tax plus interest all for saving yourself a couple of quid.

Oh, and well done on the contracts!

[Guest22]

Wow, thanks for all the amazing advice.

So, I'll leave my mum out of the equation and drop her as Company Secretary. That's one problem solved.

Just to clarify, I haven't started my 12-month contract yet - that starts next month. However, I'm two weeks into a 3-month contract, but I intend to give my 7 days' notice on it prematurely before I start my 12-month contract.

I have already got PI insurance with Hiscox, but I can cancel it within 7 days if there is another option. Is Qdos a better option to get both my PI insurance and IR35 cover then? I spoke to the agent today about IR35 compliance for my 12-month contract and they were genuinely convincing saying their contracts had been tried and tested in court and proven to be IR35-compliant. That said, if Qdos do an IR35 review for free with their insurance, that might be worth doing.

Just to make a point, I am very savvy when it comes to numbers and logic and figuring things out - I am very meticulous and thorough and I think I would be able to do my accounts myself (I am using FreeAgent), picking up everything as I go along. That said, is it possible to use a contractor accountant like Nixon Williams to manage my accounts in tandem with me so that I can keep a close eye on my accounts in FreeAgent and provide them with a login to run my accounts that way?

Also, to clarify, my Limited company from 2004 has been dormant since incorporation. It was originally to be used for another purpose, but hasn't ever traded although has remained active.

Also, regarding insurance, etc., I'm a little confused on the recommendations. PCG is a not-for-profit trade organisation that offers IR35 cover. Qdos seems to be more a consultancy/advisory service that offers both PI insurance and IR35 cover. Given I already have PI insurance with Hiscox, would it worth me just joining PCG for he IR35 cover that comes with it, as it comes with lots of other good stuff by the looks of it and runs more as a free service/charity rather than a business? Or should I ditch Hiscox and go with Qdos for everything? What factors should I consider?

Also, I've been recommended by a friend Choice Premier, a friend who is very conversant with the contracting world. Does anyone have any experience of them?

Another friend of mine also recommended Nixon Williams. As mentioned above, is it possible to use an accountant like these as well as maintain my own accounts through FreeAgent which they can use through a provided login?

I guess I'll ditch the idea of claiming expenses from previous tax years. However, I bought a car a few days before the end of my last accounting year (May 2011). It's a second car and I will be using it for business travel. I bought it on finance. Would I be able to put all the monthly payments on the business (it's a large amount, over £700 per month) if I state that the car is for business purposes only. Is there anything I can do about the initial payment (£2500 deposit) that was paid a few days before the end of my last accounting year. Also, can items like work suits be put on the business?

I guess what I'm trying to do here, is get a feel for what works and what doesn't, as, as you can probably see, I'm very new to contracting, but I'm just feeling my way through the tax minefield now and working out the dos and don'ts.

I really appreciate the help from everyone, this is a fantastic place to learn.

[adubya]

Also, I've been recommended by a friend Choice Premier, a friend who is very conversant with the contracting world. Does anyone have any experience of them?

From their website they use foreign exchange loan deals to pay you. If you don't want to end up like the poor souls in the BN66 thread then don't go down that avenue IMO.

[SueEllen]

Wow, thanks for all the amazing advice.

So, I'll leave my mum out of the equation and drop her as Company Secretary. That's one problem solved.

There is nothing stopping you have your mum as another director or company secretary but you can't just give her money for doing nothing in the business. She actually has to do some work for the business and you can't pay her more than a commercial rate.

<snip>
I have already got PI insurance with Hiscox, but I can cancel it within 7 days if there is another option. Is Qdos a better option to get both my PI insurance and IR35 cover then?

Hiscox is fine. Generally for other forms of insurances they are rated at the top.

I spoke to the agent today about IR35 compliance for my 12-month contract and they were genuinely convincing saying their contracts had been tried and tested in court and proven to be IR35-compliant. That said, if Qdos do an IR35 review for free with their insurance, that might be worth doing.

Most agents know less about the law than we do.

Regardless of who your insurance is with get your contract properly reviewed for all clauses.

<snip>
That said, is it possible to use a contractor accountant like Nixon Williams to manage my accounts in tandem with me so that I can keep a close eye on my accounts in FreeAgent and provide them with a login to run my accounts that way?

You are welcome to do your bookeeping how you like.

<snip>
Given I already have PI insurance with Hiscox, would it worth me just joining PCG for he IR35 cover that comes with it, as it comes with lots of other good stuff by the looks of it and runs more as a free service/charity rather than a business?

PCG is a association for freelancers so we have a voice with politicians and it's insurances are a perk of membership.

Or should I ditch Hiscox and go with Qdos for everything? What factors should I consider?

Lots of people use different insurance providers. There are other people who are recommended on here who will review your contract and suggest amendments.

I've had some horrible clauses in my contracts even though they were IR35 compliant and have used a lawyer to change them.

I can't be bothered to read the rest of your post. Everything you want to know has been asked before. Please feel free to use the search facility.

[SueEllen]

Two contracts at once?

It's possible you know.

1. Get a sub in and get some of the fee, or,
2. One is remote so he can spend his evenings and weekends working on it, or,
3. They are both part-time.

[stek]

However, I bought a car a few days before the end of my last accounting year (May 2011). It's a second car and I will be using it for business travel. I bought it on finance. Would I be able to put all the monthly payments on the business (it's a large amount, over £700 per month) if I state that the car is for business purposes only. Is there anything I can do about the initial payment (£2500 deposit) that was paid a few days before the end of my last accounting year. Also, can items like work suits be put on the business?

Sticky ground in my book, that would become a BIK and open up multiple tax complications, I'd say not worth unless it's one of those super-green cars there are tax incentives for...

Best to claim the 45/25p a mile.

Any expense you claim would have to be wholly and exclusively necessary for work, and a suit isn't. You could argue it is, but really it's not worth it, as soon as you take on the tax man, he's got you in his sights and he'll find something....

Best not to be 'creative' in the current tax environment, it's not worth it.