Umbrella -> Ltd. Co. Any benefits inside of IR35?

[Epiphone]

You've been there 5 years using a brolly so why not just ask if you can go perm? You're pretty much perm anyway so why not get the benefits.

[Old Greg]

@Alchemy Accountancy - Thanks for the breakdown. I'm in the private sector so the 5% is good to know about.

@northernladuk - I used to be one a long time ago but I make more money now as a 'Permatractor'. Hard to believe but true. I comes down to how long you spend out of work looking for work. Everyones mileage varies on this. Some assignments turn out to be a good fit, and this was one so I stuck around.

@WLB2018 - I've had 1 assignment near to home in the last 25 years...not holding my breath on this one. I do look though. Good advice.

@IR35 Avoider - I'm no better off Ltd. if inside of IR35. It's just a lot more in the way of compliance, paperwork and my time. If this was a case of cash in envelopes every week then the client would have a point, but Umbrellas are legal. As for choice, I'll just work for someone else. It may take some time but I'm not hard up for cash. I'm more interested in my actual work than working a Ltd.Co.

@PerfectStorm - The HMRC employment status tool says I am inside of IR35. I fail most of the tests. I could probably arrange for a contract to say otherwise, but the actual working arrangement would remain inside so if I was investigated I'd be stuffed.

Thank you for your replies.

If you do project work, I bet you are outside IR35. HMRC want to convince you that you are inside. They are not neutral.

[killingtime]

@Alchemy Accountancy - Thanks for the breakdown. I'm in the private sector so the 5% is good to know about.

@northernladuk - I used to be one a long time ago but I make more money now as a 'Permatractor'. Hard to believe but true. I comes down to how long you spend out of work looking for work. Everyones mileage varies on this. Some assignments turn out to be a good fit, and this was one so I stuck around.

@WLB2018 - I've had 1 assignment near to home in the last 25 years...not holding my breath on this one. I do look though. Good advice.

@IR35 Avoider - I'm no better off Ltd. if inside of IR35. It's just a lot more in the way of compliance, paperwork and my time. If this was a case of cash in envelopes every week then the client would have a point, but Umbrellas are legal. As for choice, I'll just work for someone else. It may take some time but I'm not hard up for cash. I'm more interested in my actual work than working a Ltd.Co.

@PerfectStorm - The HMRC employment status tool says I am inside of IR35. I fail most of the tests. I could probably arrange for a contract to say otherwise, but the actual working arrangement would remain inside so if I was investigated I'd be stuffed.

Thank you for your replies.

[PerfectStorm]

Who says the role is in IR35 now? The client? You? QDOS? Could you change any of these so that you're out?

[IR35 Avoider]

I think you're really over-thinking this. The client has said use a limted co, so really you have no choice. (Saying you won't work for them because of this is tail wagging dog.)

1. If I did form a Ltd. Co. I’d still have to declare (nearly) all company income as salary to be within IR35. I assume the accountant is a valid expense.
2. I’d have to pay an accountant.
3. I have to pay for public liability insurance and IPSE membership to help fight any HMRC investigations or fishing expeditions.
4. I’d have to pay a lawyer to review all new contracts.

Point 1: you're no worse off than you are with an umbrella.
Point 2: my (large online) accountant runs a company for less money than an umbrella would deduct.
Point 3: Valid, but it's £400 a year in total, some of which might come out of the savings from point 2.
Point 4: Presumably you will only pay to review uncertain ones, where the decision could go either way, so will get a positive decision 50% of the time, the tax savings on those contracts will more than pay for all the reviews.

[WLB2018]

Be a contractor not a Permatractor.

Make the bold step and become a proper contractor

As NorthermLadUK said, look for something closer to home and ideally outside of IR35

WLB

[northernladuk]

Get a new client where you don't have to stay away and are outside IR35?

Be a contractor not a Permatractor.

[Alchemy Accountancy]

If the contract would be inside IR35, as your post suggests, then many of the tax benefits of trading as a limited company are diminished - if you are in the private sector then take-home pay will be slightly higher under a limited company but if public sector then take-home should be identical. The reason for higher take-home in the private sector is the ability to deduct 5% from your gross income (known as the 5% allowance) before calculating the deemed salary and payroll taxes and, also from using the flat rate scheme (albeit a temporary benefit) for the first year of VAT registration.

Accountancy fees should come in around the same as what you are paying the umbrella company currently; accountancy is not a qualifying expense for IR35 purposes and therefore not deductible form the amount that the deemed salary is based on – however it can come out of the 5% allowance (if applicable). If you are in the public sector, then there is no 5% to deduct it from, so these fees would be paid from your net income. Note that the same rules that apply to the public sector currently are being extended to the private sector in 2020, therefore the 5% allowance stands to disappear altogether from then.

[killingtime]

Hello,

Looking for some advice on moving from an umbrella to a Ltd Co. Would be grateful if someone would check my conclusions.

Background: I’m a contractor offering IT related consultancy in the Pharma sector, and have been with the same client for approximately 5 years via an umbrella. For the first two years I claimed travel\accommodation expenses and when it became clear that the contract would go past the two year mark I stopped claiming. Working arrangements mean I’m within IR35. Expenses come out of my own pocket now. I live away from home Mon-Fri.

The end client I contract for has come up with some new ‘compliance’ policies for subcontractors. One of these is that all contractors must have their own Ltd. Co. Umbrellas are not permitted. The up-shot is that I either form a Ltd. Co. of leave. Current contract is almost expired and they will not renew under an umbrella. I’ve only just found this out.

I’ve done some research into running a Ltd. Co. consultancy and there doesn’t appear to be much of an up-side given legislation of the last 10 years; IR35 & dividend tax.
1. If I did form a Ltd. Co. I’d still have to declare (nearly) all company income as salary to be within IR35. I assume the accountant is a valid expense.
2. I’d have to pay an accountant.
3. I have to pay for public liability insurance and IPSE membership to help fight any HMRC investigations or fishing expeditions.
4. I’d have to pay a lawyer to review all new contracts.

At the moment the umbrella takes about 27.50 a week to do the payroll. Everything else is taxed under PAYE – so I pay a lot of tax but I’m OK with that given I don’t have all the above hassle with paperwork. If points 1 to 4 come to less than this then it’s a zero sum financial proposition.

There are many salary calculators out there (making all sorts of assumptions) but I’m having difficulty seeing how there would be less tax under a Ltd Co if you’re inside of IR35. Nearly everything your company makes would end up as salary – and if that’s the case then I’ll be paying almost the same tax as I do now under the umbrella.

The other part I’m not sure about is leaving the umbrella having only completed one assignment with them. I was aware when I joined that any accommodation\travel expenses would only be legal if I ended up running multiple assignment through the umbrella. This was as is still the case, it’s just taken 5 years to finish the first assignment - a long contract I know.

If I leave to set up a Ltd. Co. then would I have to pay all the expenses back?

If that is the case then forming a Ltd. Co. is a non-starter. I asked my umbrella about this and they told me any issue with expenses was between HMRC and myself.

Any insights on the above appreciated,

Thanks.