Reply to: IT Contracting - Ltd company or Umbrella

[northernladuk]

Ugghh. App quoting the wrong posts again. Ignore me.

[Crossroads]

The one reason I would say go ltd is that then you are in charge of the relationship with the agency. There was a post here recently, where a contractor was in dispute with a client over payment. As a brolly user, he doesn't personally have any debt. The debt is the brolly's. But since the brolly's exposure is only the admin fee, it's not worth their chasing.

This x1000. A few years ago I went brolly for a while for various reasons.

It turned out the agency were a bunch of shysters. Because I had no direct relationship it was very difficult to make them pay.

I got lucky, by spotting the issue quickly and outwitting them, putting pressure on spouses who did not realise the responsibility they held by being officers of said agency and turning up at home addresses at inconvenient times. Oh, and explaining to one director I would mention to his employer that he was running a sideline business in direct competition with them. None of it nice to do.

Anyway, I digress. IMHO if you go umbrella you add another rung to the ladder and give up control of the contractual relationship with your client. I'd rather pay an accountant and put a few hours of effort in myself even if there is no financial reward.

[LondonManc]

LondonManc,
Thanks for the heads up, I'll stick to Ltd company.

Currently my arrangement allows me to expense for travel to customer site, so I pass those expenses on my client (i.e. the consultancy) who will reimburse me.

If only all contracts were like that!

Outside IR35 simply means, from an expenses point of view, that you can take that money out of your own company from the top level, i.e. you don't have to pay tax on the money you take out of the company to pay your expenses. Perhaps the future of inside IR35 contracts is that we take a hit on the tax but get to invoice full (reasonable) travel and accommodation expenses to client, but that's a discussion for a separate thread.

Good luck with contracting.

[newbieITContractor2015]

LondonManc,
Thanks for the heads up, I'll stick to Ltd company.

Currently my arrangement allows me to expense for travel to customer site, so I pass those expenses on my client (i.e. the consultancy) who will reimburse me.

[LondonManc]

Comments on the OP:

Classic case of Friday-Monday IR35, don't waste money on an IR35 review but do understand what all the clauses in the contract mean. Also be wary; while there may be a notice clause, your "real" notice clause is minimal. I've known people walked off site for trivial reasons and myself had my contract terminated at a smaller client due to budgetary/project changes. There was simply "no work" for me; it's legal but not nice and is all part of the risk that we get paid more to take on.

Expenses - while you are contracting, in this gig you are contracting for a consultancy. This is different to a standard via-an-agency gig. You've added an ultimate client at the end. Make sure that your contract with the consultancy allows you to expense everything when working away - particularly travel, hotels, and an evening meal allowance. Straight charge back. Saves you messing around with the 5% rule and get a 100% rule in place

Go limited though; long term it allows you to be far more flexible.

[MrMarkyMark]

A professional opinion rather than strangers on a internet forum is always advised, he most likely is inside IR35 however speaking to his accountant about all aspects of contracting would make sense not just IR35.

Totally agree, however I was referring to your comment about having the contract reviewed.
I don't see the point, as the working arrangement, as he described, will trump any nonsense written in the contract.
If he wishes to waste his money, however, he should go right ahead

[Jeremiah@RHJAccountants]

What would be the point of that?

He's a classic IR35 fail, Friday to Monday, perm to contractor, same gig, same company etc.
Exactly what IR35 was designed for. It wouldn't matter what was written down, in the contract, in this instance.

A professional opinion rather than strangers on a internet forum is always advised, he most likely is inside IR35 however speaking to his accountant about all aspects of contracting would make sense not just IR35.

[MrMarkyMark]

Has you contract been reviewed for IR35 ?

What would be the point of that?

He's a classic IR35 fail, Friday to Monday, perm to contractor, same gig, same company etc.
Exactly what IR35 was designed for. It wouldn't matter what was written down, in the contract, in this instance.

[NotAllThere]

Payroll is simple to do yourself, should you choose to. I've always done it myself - at first using the tables and procedures provided by the Inland Revenue (as it was!), but then by software. At first, you'll only have your own to run, so it won't be onerous. My accountant will do payroll and bookkeeping. But we prefer to do it ourselves, as we keep closer track of our money, it costs less, there's no real pitfalls and doesn't need accountant expertise to do. He does year end and is available for questions and dealing with the authorities on our behalf. Now, I don't live or work in the UK anymore, but the principles are the same. Even though we have to do it in German, it isn't difficult.

While the standard contracting model is for your accountant to provide a full service, if your accountant doesn't want to do these basic tasks, then you could probably hire a bookkeeper for a couple of hours a month to do it for you for less money. Many small businesses operate this way in the UK.

[northernladuk]

In addition, I've spoken to my accountant and he said he'd prefer me to process my own PAYE every month (he's happy to do the annual return), as I've never done this before, could someone point me in the right direction\provide some tips for this?

Thanks

Get a better accountant, preferably a freeagent one. What's the point of having an accountant that leaves you in limbo try doing to do stuff you don't k ow how to? Sounds a bit ridiculous to me.

If you are going to get multiple clients and have people working for you it's going to get pretty complicated pretty quick. The last thing you need is an accountant who's palming his duties off on you.

[NotAllThere]

The one reason I would say go ltd is that then you are in charge of the relationship with the agency. There was a post here recently, where a contractor was in dispute with a client over payment. As a brolly user, he doesn't personally have any debt. The debt is the brolly's. But since the brolly's exposure is only the admin fee, it's not worth their chasing.

[Jeremiah@RHJAccountants]

Thanks for the feedback guys,

I've spoken to some friends (fellow IT employees) and there's potential for additional clients, as well as having people available to do the work. Therefore I'm going to use a limited company.

At first, I'm probably caught by IR35, therefore am I right in thinking if I limit my expenses to the following and ensuring they're under 5% I'm OK?
- administration expenses (i.e. accountant & a company website)
- pension contributions
- profressional subscriptions (MSDN)

In addition, I've spoken to my accountant and he said he'd prefer me to process my own PAYE every month (he's happy to do the annual return), as I've never done this before, could someone point me in the right direction\provide some tips for this?

Thanks

If your inside IR35 you may want to ask you accountant to process the payroll especially since you have never done this. Can he not advise you on this?

Has you contract been reviewed for IR35 ?

Have you thought about the tax currently paid via PAYE this tax year and the affects of this when it comes to drawing funds from the company?

Your accountant who knows all your personal circumstances will be best placed to advise you and this is what you pay him for!

[fidot]

If I read this correctly
His client will be his current employer, so travel to the client site (current employer) won't be allowed. However, travel from that site to their clients' sites may be.

[newbieITContractor2015]

Thanks for the feedback guys,

I've spoken to some friends (fellow IT employees) and there's potential for additional clients, as well as having people available to do the work. Therefore I'm going to use a limited company.

At first, I'm probably caught by IR35, therefore am I right in thinking if I limit my expenses to the following and ensuring they're under 5% I'm OK?
- administration expenses (i.e. accountant & a company website)
- pension contributions
- profressional subscriptions (MSDN)

In addition, I've spoken to my accountant and he said he'd prefer me to process my own PAYE every month (he's happy to do the annual return), as I've never done this before, could someone point me in the right direction\provide some tips for this?

Thanks

[northernladuk]

While I would agree with the above - you will not be able to expand if you use an umbrella.

An umbrella means you are not so much working for yourself but working on a freelance basis for others...

If you want to expand you really need a proper company structure that will allow you to expand the business how you describe above you really need a limited company.

My big question if you want to be a contractor or create a proper company why do you want to contract with the company you currently work for.. Apart from some immediate income that isn't going to help you do anything that you want to do and as shown by MS above its actually going to hinder you not help...

Absolutely but I can't help reading the OP's plans that they are probably much the same every newbie has with the rose tinted specs. I've a feeling the OP is going to be very surprised and disappointed when he finds he's just going to get stuck in the churn with a majority of us dealing with agents, how few clients take on direct and so on.

To that end I think the OP needs to read the guides in the Umbrella section about LTD vs Umbrella.

Umbrella Companies

I also think he needs to go brolly for maybe his first 3-6 months or his first gig until he finds his feet and understands the reality of the situation and then switches to LTD when he's ready. If he's going to contract with his current employer then it's Umbrella anyway.
Umbrella might not be that efficient but if he's going to nail his contracting career a couple of months brolly will be peanuts. We've had more than enough people come on and mess it up from the start and arguable cost them more over the short term than brolly.

Only the OP knows how (over)confident he is but I don't see a problem with Brolly to start if there is any doubt whatsoever.