Reply to: £450/day IT contract for 3 months. Umbrella or limited company?

[SuperZ]

You're not via brolly, you're through an offshore scheme. Those take homes are not possible on a standard brolly.

You mentioned IQ on another thread as if you use them. This bears out the above.

Blimey, hasn't HMRC shut down these schemes already? If not, why not?
I knew of quite a few individuals under investigation for 2,3 or four years and not seen HMRC winning yet for any years or have I missed this? Not sure why HMRC are having a hard time when someone earning £90k plus has been paying £2 or 3 k tax and getting away with it. I guess that's why they're now getting the agencies to report the figures back.

Not sure if someone pointed out to OP but limited company definitely if you don't need to get at all of the £450 a day you're earning. Definately do not fall for one of the dodgy offshore schemes on "recommendation"

[Mincepie]

Ahh fair enough. Thanks for the clarification.

I dont how i will sleep tonight now though as someone has been nasty to me on the interspaz

[northernladuk]

I dont think he was having a go at people with brollys but me getting into a pickle 3 years ago when i should have gone brolly in the first contract instead of going all rock star with my cash while (not) running a LTD. I said before i wish i had found this forum then...

However what a year that was

Ahh fair enough. Thanks for the clarification.

[Mincepie]

If we are talking normal brollies here then this is rubbish. Not everyone can do it for one reason or another and has been proven time and time again on here. There is absolutely nothing wrong with going brolly for a short period of time. It's not as efficient (and maybe even less so now with the T&S changes granted) but just for a short stint in a long contracting career it's absolutely peanuts.

It's a tool, it's not for everyone but using one to start off with is not stupid.

I dont think he was having a go at people with brollys but me getting into a pickle 3 years ago when i should have gone brolly in the first contract instead of going all rock star with my cash while (not) running a LTD. I said before i wish i had found this forum then...

However what a year that was

[northernladuk]

That's your own stupid fault, sorry to say. It's so simple to run a LTD< i wonder how you got into so much bother.

All you have to do is call up one of the reputable accountants, intouch, SJD, whatever. Those guys will make sure you don't make a mess of your accounts.

If we are talking normal brollies here then this is rubbish. Not everyone can do it for one reason or another and has been proven time and time again on here. There is absolutely nothing wrong with going brolly for a short period of time. It's not as efficient (and maybe even less so now with the T&S changes granted) but just for a short stint in a long contracting career it's absolutely peanuts.

It's a tool, it's not for everyone but using one to start off with is not stupid.

[Mincepie]

That's your own stupid fault, sorry to say. It's so simple to run a LTD< i wonder how you got into so much bother.

All you have to do is call up one of the reputable accountants, intouch, SJD, whatever. Those guys will make sure you don't make a mess of your accounts.

I was green and was with Churchill Knight.......The rest is history

I was an idiot but all sorted now and with left CK in the dust and tears (my own)

[dogzilla]

I wish i went brolly first gig or two, would have saved me making a mess of my LTD accounts that took ages to recover from!

That's your own stupid fault, sorry to say. It's so simple to run a LTD< i wonder how you got into so much bother.

All you have to do is call up one of the reputable accountants, intouch, SJD, whatever. Those guys will make sure you don't make a mess of your accounts.

[psychocandy]

Someday. I think if I start getting more limited-term project work that feels like consultancy I'll go the limited company route. At least I don't feel like I need to run screaming from the umbrellas now!

Assuming you plan to stick with contracting, I would be if I were you. Its costing you a fortune!

[psychocandy]

I thought the difference was only like %5? Sweet deal though either way to me.

£22.50 a day. £125 a week. £500 a month.

Admitedly, if you're not going to stick with contracting then its pointless going limited but thats a lot of money to save minimal hassle with going limited in my book....

[IR35 Avoider]

The last time I chose between the two, when on a significantly less than £450, and treating myself as IR35-caught, I found the break-even (for inside IR35) was something lie 20 days work within the tax year. Above that a LTD was more cost-effective.

Remember if IR35-caught, and you only work part of the year, your National Insurance will probably be higher via a brolly. If you work less than a full year, the annual pay period that company directors have saves you money, by comparison. When you go via a brolly you will have a weekly or monthly period, which works out more expensive if you don't earn the same amount in all weeks/months of the year.

Apart from possibly less National Insurance via a LTD, you can also make a profit from flat-rate VAT that is more than big enough to pay all your accountancy fees.

Lastly, my on-line accountant charged less to run a company for a year than Parasol would have charged to be my umbrella.

It's a bit of a no-brainer, really.

[Alan @ BroomeAffinity]

£450/day IT contract for 3 months. Umbrella or limited company?

I was on a contract making exactly the same as you, £450/day. I used an umbrella company and the take home was circa 7k a month. Tried to compare limited company but definitely the take-home is nowhere near.

You're not via brolly, you're through an offshore scheme. Those take homes are not possible on a standard brolly.

You mentioned IQ on another thread as if you use them. This bears out the above.

If you don't know you're in a scheme, and you don't know the difference between the two, you're in for a whole heap of trouble down the line.

And also, these people are ripping you off. Every penny deducted goes into their pocket. No (or very very little) tax is paid. Why do you think they can afford to pay £750 referrals. That's more than a brolly make in profit per contractor per year.

[Kale629]

I was on a contract making exactly the same as you, £450/day. I used an umbrella comp

Lisa, I have generally maintained that inside ir35 and starting out may as well go brolly. There may be reasons not to if brolly cant be as flexible as you want with it pension route. If already have the co established then perhaps that changes.

but, on your calculator or website it might be worth putting up the calc for next years with the divi tax.

in my view itis clise enough for some people who just want an easy life to still go the brolly route with the more limited difference in the new regime.

I did a calc on my understanding of it based on 100k. If you are billing that much it worked out at about 90 mins chargeable a week. Onecouldeasily spend that amount of time on admin.

I was on a contract making exactly the same as you, £450/day. I used an umbrella company and the take home was circa 7k a month. Tried to compare limited company but definitely the take-home is nowhere near.

[ASB]

Monthly

Company Income 9,000.00
Expenses 0.00

Calculate

Employer's NI 996.74
Employee's NI 430.49
Employee Tax 2,295.39
Total All Tax 3,722.62
CU Margin 108.50
Total Net Income 5,170.38

The above figures are based on £450 per day for 20 days per month with zero expenses and assuming that you are on a standard tax code.

If you work through a Ltd Co the tax home will be a little higher if you are inside IR35 and a lot higher if you are outside IR35.

If you want an easy life then try umbrella for a few months to see how you get on; you always have the option to set up a Ltd co after a few months if you find that you like the contracting lifestyle. If you set up a Ltd Co from the getgo then make sure you get a good accountant that understands the contracting world and do plenty of research so that you have a complete understanding of your responsibilities as a Company Director.

Lisa, I have generally maintained that inside ir35 and starting out may as well go brolly. There may be reasons not to if brolly cant be as flexible as you want with it pension route. If already have the co established then perhaps that changes.

but, on your calculator or website it might be worth putting up the calc for next years with the divi tax.

in my view itis clise enough for some people who just want an easy life to still go the brolly route with the more limited difference in the new regime.

I did a calc on my understanding of it based on 100k. If you are billing that much it worked out at about 90 mins chargeable a week. Onecouldeasily spend that amount of time on admin.

[DallasDad]

There is another option if the OP has a decent war chest or other existing source of income from swmbo for example.

Use a reputable umbrella offering a decent pension scheme
Put as much as poss (even 100% less the umbrella margin) in the scheme - No tax or NI on those contributions, well not immediately anyway
Bearing in mind there is a £40k annual pension pot cap so £450 a day will soon exceed that if you get an extension of three but by then you should have had plenty of time to consider your options

That is what I am presently doing whilst I get the hang of this contracting lark, and that also negates me having to ponder whether I go PSC for now.......... I think or am I missing something obvious here?

I am over 55 so am actively building up my pension pot with a view to drawing on it in the not too distant future.
Even if the investment in the scheme doesn't achieve a particularly high yield I think it would have to fail miserably to equal losing circa 50% to the tax man via paye

[LisaContractorUmbrella]

If the role is going to be outside IR35 and incur travel and subsistence expenses, then I would look very carefully at whether it is worth using an umbrella company any more.

From April 2017, I'd look even more carefully at what the fees are likely to be and whether some umbrella companies will be able to stay the course with their additional costs.

Working through a limited company offers two additional protections that are often missed - firstly, there is one less person in the chain to disappear with your money; secondly, there is one less person in the chain so if things go wrong your company can take action rather than you needing your employer to do it for you.

The primary consideration for using an umbrella company is not always take home pay There are pro's and con's for using umbrella and for using Ltd - yes there is a risk that the brolly could go bust taking your money with them but the chances are very slim indeed if you use a reputable company but, on the plus side you get certain benefits that you wouldn't with a Ltd such as SSP and SMP. If your only consideration is take home pay and you're outside IR35 then a Ltd Co is a no brainer, I agree but that's not everyone's situation