Taking a contract inside IR35

[ContrataxLtd]

I'm obviously being too much of a purist here, but if the sector was working as it perhaps should, people might be going in and out of inside contracts as a matter of course, so I naively expected the accountants fee to cover both. I did imagine that declaring yourself outside was rare, but not so rare as to be non existent.

As WIB points out, check your engagement letter (if you have one) to see what it covers in terms of inside IR35 contracts. I can't really see why they would charge more to be honest, there is a little bit more work each month calculating what the deemed payment should be but not that much more work. If you are using Freeagent it will calculate this for you also.

They should also really be able to provide you with a few calculations to see how being inside IR35 will affect the tax you pay and the ways to reduce this (pension, changing salary etc.) that have been mentioned previously.

Martin
Contratax Ltd

[WordIsBond]

Do you have a letter of engagement from your accountant? Does it specify an extra fee for inside IR35 contracts? Does it specify that the engagement only covers outside IR35 contracts?

If that stuff was in your letter of engagement, then obviously they are well within their rights to put up your fees for an IR35 contract. If it isn't in that letter of engagement, then I'd talk to the accountant on the phone (not his assistant) and say that this extra fee wasn't covered in your letter of engagement, that going inside IR35 for a few months is not particularly complicated, and they shouldn't need to be charging an extra fee. If he insists, get another accountant.

Sounds to me like they don't know how to handle an inside contract and want you to pay them to learn. If they are going to insist on that, it probably makes more sense to go to someone who already knows how.

The advice Martin gave you is sound. I still run an inside contract, £2K a month retainer with my former employer. I probably now could go outside with it, with the other contracts I'm running, and no one would ever say anything. But I use it for my salary and pension contributions. I pay no other salary but what comes out of that contract. When my pension maxes out and I can't make the contributions anymore, I'll have to reconsider how I handle this contract. But if you apply your pension contributions and salary for the entire year to a 3 months inside contract, it is not likely to result in a big tax hit.

[groovybeetlecar]

Inside IR35 in private sector means your accountant will ensure the correct level of tax is paid and ensure the correct/desired amount is paid directly from your Ltd into your pension to fit the rules, which is why they are bumping up their fees to cover that extra work.

As it's private sector you should still get the expected rate paid to your Ltd from the agency without them needing to take any tax for PAYE/NI (or expect you to use an umbrella for the payroll), which they would be legally required to do if it was public sector.

As this scenario isn't new you can search on CUK for recent years to get other feedback and ignore all the recent stuff about public sector and IR35 as it doesn't apply to you.

I'm obviously being too much of a purist here, but if the sector was working as it perhaps should, people might be going in and out of inside contracts as a matter of course, so I naively expected the accountants fee to cover both. I did imagine that declaring yourself outside was rare, but not so rare as to be non existent.

[Hobosapien]

Inside IR35 in private sector means your accountant will ensure the correct level of tax is paid and ensure the correct/desired amount is paid directly from your Ltd into your pension to fit the rules, which is why they are bumping up their fees to cover that extra work.

As it's private sector you should still get the expected rate paid to your Ltd from the agency without them needing to take any tax for PAYE/NI (or expect you to use an umbrella for the payroll), which they would be legally required to do if it was public sector.

As this scenario isn't new you can search on CUK for recent years to get other feedback and ignore all the recent stuff about public sector and IR35 as it doesn't apply to you.

[groovybeetlecar]

Thank you - and this great advice once again makes me question my accountancy advice our lack of it

[northernladuk]

Thank you - could you clarify your last point please?

You currently take a low salary to keep you under the tax threshold. You'll be taking all the income from your inside contract as salary which will put you over the basic threshold. If you pay yourself anymore from your company you are going to be paying a higher level of tax so might as well not pay yourself anything else for the rest of the year.

[groovybeetlecar]

In terms of the IR35 status of the contract, do the usual and get a contract and working practice review and proceed form there. From the brief details you've provided it could well be that this is inside due to the possible treatment you will receive at the client site but I'll leave that to others to debate etc.

Actually accounting for an inside IR35 contract is quite easy as it is a private sector contract, work out 95% of the income, take out pension contributions and pay the rest as salary (very simplistically put, there is a little more to it but not much). Nothing wrong with doing a 3 month contract as IR35 caught either.

You may want to consider making your yearly pension contributions from this contract income to minimise the tax hit of IR35 too as depending on the level of income for the 3 months and pension contributions IR35 might not make much difference other than your ability to claim expenses that would normally have been claimable outside IR35.

You can also decide to not take any further salary after the IR35 contract and this may help mitigate some of the tax implications too.

Martin
Contratax Ltd

Thank you - could you clarify your last point please?

[groovybeetlecar]

The devil is in the detail and you are missing quite a bit. For a start you haven't mentioned working practices at all. The role you are taking is effectively temping rather than delivering a skill the client doesn't have so you can imagine they'll treat you like a temp/permie and that is the deciding factor. Working practices trump your contract. I'd be very surprised, even if it's in your contract, that they would honour a Substitution Clause for a start. I also suspect you'd be under D&C as they'll be telling you what to do when like they did the person you are covering. The moving about projects screams this as well.

I am guessing you'll get very different advice on here. Some will say you've done the right thing. Looks as inside as a role could be. Others will say go outside and save the tax if you get caught. The process itself is unpleasant not just the cost don't forget.


For what it's worth my opinion is it's a three month gig, hardly the end of your contracting career. Being inside is safe and it's not exactly going to put you on the breadline either. Do the gig inside, get it on the CV and move on to the next one.

Thank you, but that isn't my question, as I've already decided to go inside. My question is, given this, is the advice from my accountant to be expected? Being advised to go umbrella for the duration when I have a ltd company and a pension and being told that virtually no contractors take an inside contract through their ltd co seems odd to me, but maybe it isn't.

My confidence just isn't high that I'll get the advice I need to work out the best pension level, etc, at the mo.

[ContrataxLtd]

In terms of the IR35 status of the contract, do the usual and get a contract and working practice review and proceed form there. From the brief details you've provided it could well be that this is inside due to the possible treatment you will receive at the client site but I'll leave that to others to debate etc.

Actually accounting for an inside IR35 contract is quite easy as it is a private sector contract, work out 95% of the income, take out pension contributions and pay the rest as salary (very simplistically put, there is a little more to it but not much). Nothing wrong with doing a 3 month contract as IR35 caught either.

You may want to consider making your yearly pension contributions from this contract income to minimise the tax hit of IR35 too as depending on the level of income for the 3 months and pension contributions IR35 might not make much difference other than your ability to claim expenses that would normally have been claimable outside IR35.

You can also decide to not take any further salary after the IR35 contract and this may help mitigate some of the tax implications too.

Martin
Contratax Ltd

[northernladuk]

The devil is in the detail and you are missing quite a bit. For a start you haven't mentioned working practices at all. The role you are taking is effectively temping rather than delivering a skill the client doesn't have so you can imagine they'll treat you like a temp/permie and that is the deciding factor. Working practices trump your contract. I'd be very surprised, even if it's in your contract, that they would honour a Substitution Clause for a start. I also suspect you'd be under D&C as they'll be telling you what to do when like they did the person you are covering. The moving about projects screams this as well.

I am guessing you'll get very different advice on here. Some will say you've done the right thing. Looks as inside as a role could be. Others will say go outside and save the tax if you get caught. The process itself is unpleasant not just the cost don't forget.


For what it's worth my opinion is it's a three month gig, hardly the end of your contracting career. Being inside is safe and it's not exactly going to put you on the breadline either. Do the gig inside, get it on the CV and move on to the next one.

[Invisiblehand]

Have you ever considered working as normal (outside) and just not spending the difference in earnings? That way if you are ever get tapped on the shoulder you have it to hand. Seems like a risk worth taking to me.

Some contractor specialists will have a tax specialist and other won't. It sounds like you may be with one who doesn't.

[groovybeetlecar]

Thought I'd start a new thread on this as it's technically a different question to my original one about asking questions regarding working practices at interviews.

So, I had a telephone interview for a three month role that outlined the contract is sickness cover for long term sick and that I'll be required to work as one of the BA team, moving from project to project as required. My alarm bells went off that this would not sit well with IR35 and my accountant confirmed this was the case, so I decided to accept the contract but do it inside IR35. This is private sector.

I'm now finding it difficult to get quality advice around this. At first, my accountant (or rather, his assistant) suggested that most people would either avoid accepting a contracting inside IR35 or go umbrella. As outlined in the other post,i want to stay with my limited company so as to pay into my own pension.

I then sent a copy of my contract and asked if there was anything there that was incompatible with being inside IR35. She did an initial IR35 review and said it was consistent with self employment and therefore IR35 compatible. I reminded her that we'd already discussed the IR35 status as being outside and was wondering if there was anything I should watch out for that I would want to change on that basis. E.g. the clauses about putting stuff right at my own cost (i'm not saying I think these shouldn't be there,i was asking if they should given the nature of how I will be working).

Her reply is that I will still be self employed even though I'm in side IR35 (which obviously I'm aware of) and this is why people would either avoid an inside role or go umbrella.

They've also put my monthly fees up to process an inside IR35 contract.

I'm just looking for opinions here as to whether this all sound normal accountancy behaviour? She is the accounts assistant, not the account manager (who's away so I can't speak to him). But surely an accountant specialising in contractors must have come across at least a proportion of inside contracts? I mean, as it's determined on a contract by contract, surely it would be natural for people to be moving in and out on occasions, unless every single contractor is just winging it and going for the best?

At the moment I'm feeling like a fool for going inside, even though it was the accountant who agreed that it was not good IR35 working practice.