Reply to: New contractor tempted by Norla Isle of Man EBT option

[Normie]

Bauer and Cottrell contract review

Thank-you for the replies - well all except Malvolio who seems keen to abuse me as a newbie whi is new to all this and admits that openly.

I will not be pursuing the EBT option and am curious about the notion of being outside IR35. Presumably I should ask computerpeople to change the contract to make it more likely I can claim to be outside IR35, although not being a lawyer I don't really know what it is I'd like them to change. I also got the impression from speaking with them on the phone that they see me as caught fair and square within IR35 and thus the contract reflects that.

Saxon

Get on the blower to Bauer and Cottrell and they will do all the contract negotiations with the agency (costs about 120 quid I think):

http://www.bauerandcottrell.co.uk/services.asp

Within a couple of days you should have a nice IR35 friendly contract. The advantage of using B+C is that they talk to the agencies all the time and know who to speak to in the legal/contract departments, rather you wasting your time talking to a muppet agent.

Cheers,
Ian

[redowl]

Malvolio, thank you for the advice.

[malvolio]

AS I keep saying to all and sundry, read the guide to freelancing at www.pcg.org.uk. However, in the spirit of amity and assistance:

Set up a Limited Company. It invoices for work done by its director and/or employees (i.e. you). You pay yourself a salary (how much is a bit up for debate, but somewhere between National Minimum Wage and a living amount. As and when you have profits in the company, you can pay yourselves dividends in proportion to the number of shares held (i.e. if you have all of them, you get all the dividend, if someone else has 20%, they get 20% and you get 80%). Exnpenses and the like are claimed as and when. The Accountant is to advise you on how it all works legally and how best to structure things, as well as audit books and sort out PAYE and the like. Do not try an do without until you know you know what you're doing.

Umbrella - you're in effect their employee. They pay you according to various criteria, some of which pretend to save you tax (it doesn't, actually - at least, not very much). It's hassle free and a good way to get into freelance work while you learn the ropes - but my view is that why do I want to pay someone else part of my profits to manage my money? The Ltd Co is not really that hard, and is less likely to attract the attentions of the taxman than some umbrella schemes.

Contract terms are another minefield. Do the research, read the published material (there's a fair bit on ContractorUK for example - look at the right side of this page), think about joining the PCG for peace of mind (if nothing else) and stay away from the big agencies with complicated contracts if possible. Get everything checked by someone who knows what they're talking about. Walk away from bad ones - it's not worth the hassle.

[Mindomoo]

Roots, he used the fatal words "computerpeople"...

I had a CP contract that was a pass. Had it reviewed twice.
Think it depends on the office you are with. Also this was over 12 months ago so they may have changed.

Have no idea what was in the upper contract mind you but I did make sure my working practices were outside IR35. This actually caused a major problem for me when the PM changed half way through from one who was happy for me to be outside IR35 and one who wanted to micromanage me.

I left the contract early because of it.

However I had no attempts by them to dictate who I worked through, how I was paid or anything else.

[redowl]

I too am looking at going into contracting but find the more I read, the more confused I get.

Am I right in thinking that it is better to setup a ltd company and hire yourself an accountant than use a umbrella company ? If so how and when do you make payments to yourself ?

If I do manage to secure a contract how did you go about ensuring the contract suits you and not the agency ?

Sorry if this doesnt make any sense but like I said I am confused. Grateful for any advice from the experienced contractors on here.

[malvolio]

**************????

Sorry guys - seems I'm not allowed to post the name of the accountancy /umbrella that is "for" contractors... Weird...

[malvolio]

Like I said (and have said to other new starters) do the reading and the research. Anyway, once again - the key determinants (there are others, and no one is a silver bullet) are :

"Are you under any obligation to do work offered and are they under opbligation to offer work", otherwise known as Mutuality of Obligation (MOO for short). This is a CP Contractual fail straight away.

"Are you under the direction and control of the client" - do you do what you are told to do or do you deliver an objective by whatever methos seems appropriate to you, including where you work and what tools you use. Again, the CP contract will not allow this, and will include the requirement that "you will work under the client's direction and control at all times" - go look it up.

"Can your company send a substitute for the role if you are unable to perform the work" - not "have you got one" but are you allowed to let someone ele do the work under your current contract. CP will not permit this to happen, or they will hedge it so tightly (as in "they must approve any subs") that it is not allowed.

It's not a case of "not being noticed", it's a case of being inside the law, according to your informed professional assesment, or expert opinion obtained by you - if you are seen to have made the attempt to satisfy the key conditions of self-employment, you may be safe. As far as the CP contract is concerned, none of the above will be anywhere near it, nor will they allow you to include them, so you will be legally inside IR35. Sorry...

And I would be very wary of an accountant who is, in effect, advising you to ignore current legislation: not really very professional is it? Go talk to one of the experts - SJD, Lawspeed or even the ************ bunch that hover around these fora. They have the benfit of knowing what they are on about.

[Rebecca Loos]

Presumably if all Computerpeople are doing is paying into my business account then my accountant can then work as if I am outside IR35 in terms of low salary, high divi and just hope it doesn't get noticed because that's what thousands of people are doing? I guess if the IR do come looking in which case presumably all I have to do is then say 'sorry' hold my hands up and shove the tax at em?

Yes and no.

ComputerPeople are doing a lot more than just "paying into your business account". They are also:
- drafting and signing a contract between the client and themselves
- drafting and signing (and making you sign) a contract between them and you

Now you will be able to talk to your accountant re IR35, however your accountant will have to work with those 2 contracts when trying to get you out of IR35. With some contracts, it's easy. With others (and ComputerPeople's fall under that category), it's much much harder!

Second, ComputerPeople will try and dictate the way your LTD (of which YOU are a director) pay you. I know this sounds outrageous, almost laughable. But they will try. First, they will try to make you give up your LTD and work under an umbrella. I am hoping they are still accepting that you might refuse and let you work under a LTD.
Second, they will try to make you promise them that you will pay yourself the whole of the money as salary and hence pay full tax+NI on it.

If you go through one of their approved umbrella, they will succeed. If they let you go through your own LTD, then they cannot enforce it and hopefully you'll be able to pay yourself as you wish, i.e. as your accountant deems appropriate and tax-efficient.

This seems to be the reality of working with ComputerPeople and this is one of the reasons you may want to refuse working with them.

Rebecca in "I'm not working with those clowns" mode

[saxon]

Thanks

Malvolio,

No worries and thanks for the information. I have just spoken with a local accountant who has indicated (as suggested earlier in the thread) that he would like to take a look at the contract, although he feels there is a good chance on a very short contract of this nature of slipping under the radar given I am then leaving contracting to go permie again.

Presumably if all Computerpeople are doing is paying into my business account then my accountant can then work as if I am outside IR35 in terms of low salary, high divi and just hope it doesn't get noticed because that's what thousands of people are doing? I guess if the IR do come looking in which case presumably all I have to do is then say 'sorry' hold my hands up and shove the tax at em?

Keen to hear views,

Jonathan

[malvolio]

"well all except Malvolio who seems keen to abuse me as a newbie whi is new to all this and admits that openly."

Now then, I'm not knocking you for being a newbie, 'cos we've all been there, and we've all made mistakes (even me ). Everyone knows I'm a miserable old curmudgeon anyway

What I'm knocking is the lack of research before you start off on a significant career change such that you would even consider the EBT option (even based on unqualified advice) when you haven't really got your head around the basics. You are allowed to be wrong, but you should not be either naive or unprepared - there is a lot of information already in place to help you.

It is perfectly possible to have a valid defence against IR35 while working on site with client equipment and client staff - I do it myself - but you will not do it with a Computer People contract and they will not make any significant changes to help you (even if they do, you will find that they have not changed their contract with the client anyway, so you're still still stuffed.) CP do not even understand the concept of "not caught" - they will not take any notice of your Ltd Company at all, will represent you as their employee and will stiff you over expenses and VAT.

My advice may be abrupt (after all, think about what 'malvolio' really means!) but it is qualified by experience and it is realistic. If you don't believe me and the more polite members of our little gang, go look at the Guide to Freelancing at www.pcg.org.uk at the very least.

[saxon]

Interesting

Thank-you for the replies - well all except Malvolio who seems keen to abuse me as a newbie whi is new to all this and admits that openly.

I will not be pursuing the EBT option and am curious about the notion of being outside IR35. Presumably I should ask computerpeople to change the contract to make it more likely I can claim to be outside IR35, although not being a lawyer I don't really know what it is I'd like them to change. I also got the impression from speaking with them on the phone that they see me as caught fair and square within IR35 and thus the contract reflects that.

At the end of the day I will be using the offices, facilities, computers and equipment of the hiring firm. I don't advertise, don't employ any staff and am being hired for a period of 6 months initially to work on a project lasting perhaps 2 years. I can't see how I could argue otherwise with the IR. If I just declare myself outside IR35 and hope to slip under the IR radar because I'm only doing this for a few months presumably I may get away with it and I guess that's what most people are doing.

Saxon

[rootsnall]

I've never had the pleasure of working for them !

[Bradley]

Re: Less Tax

If you're only going to contract for one year then form a limited company, draw the money you need out as a loan and then get the company struck off. You can ignore IR35 and s660 cause the Revenue will never get round to paying you a visit. That way you'll end up paying far less tax because of:

- the zero rate of CT up to £10k
- the availability of taper relief at 50% on striking-off (you & partner)
- the capital gains annual exemption (you & partner)

For example

Contract Income => £50k
Expenses => £6k
Profits => £44k
CT Payable => £8k
Capital distributions => £36k (figure above)
Cap Distribs (each) => £18k
Cap Distribs less CGT taper @ 50% => £9k
Capital Gain after Annual Exemption => £0k

TAX PAYABLE £8k or 16% of Gross IE Only 6% more than they'll charge for a post-Dextra case dodgy or what EBT

[rootsnall]

The majority ( inc me ) are a I think working through a Ltd and declaring themselves outside IR35 and getting 70%ish net. If you only do one set of accounts in your contracting career I very much doubt the IR will deem you a worthwhile target to chase !? All of the agencies I know about were issuing IR35 friendly contracts, I'd quiz the agency and demand a decent contract.

[malvolio]

Congratulations...

You've just managed to consider using the three worst posible options to being a freelance in a single post - Computer People, 360 group and EBTs. Plus demonstrating appalling ignorance about how it all works and just how difficult it is to do it legally.

If you have a CP contract, forget about IR35 because you will be caught, end of disussion.

And for reference, a legally constructed Ltd Co will return around 80% at fairly low risk, if you know how not to be caught by IR35. I suggest you go with the flow for this role, but do some research (including using a proper accountant for professional advice) before you go for the next one. You'll still double your permie wage.

That said, welcome to the real world!