Reply to: Accountant advised me to go Umbrella ?!?!

[LisaContractorUmbrella]

Parasol is the one I was thinking of:

Sundry office expenses

Claiming the full cost of any purchase requires a security deposit* equivalent to 10% of the purchase price to be paid. The equipment will become the property of Parasol, with the option to purchase it after a qualifying period at a second-hand value assumed to be equal to 10% of the purchase price.* The 10% deposit will deducted from your net pay following your authorisation.

In reality, I don't think the umbrella ever takes possession of the assets. The value of the asset would be accounted for by the umbrella and depreciated over X years until it's written off...

I could be being a bit thick here but does that read to you that the contractor buys the equipment but, in order to claim the full cost as an expense, has to pay their umbrella company 10% of its value - surely not

[Wanderer]

I can't see how this would work in practise tbh - surely the contractor has to pay the umbrella company the full value of the asset at the point of purchase to avoid the umbrella company losing money?

Parasol is the one I was thinking of:

Sundry office expenses

Claiming the full cost of any purchase requires a security deposit* equivalent to 10% of the purchase price to be paid. The equipment will become the property of Parasol, with the option to purchase it after a qualifying period at a second-hand value assumed to be equal to 10% of the purchase price.* The 10% deposit will deducted from your net pay following your authorisation.

In reality, I don't think the umbrella ever takes possession of the assets. The value of the asset would be accounted for by the umbrella and depreciated over X years until it's written off...

[LisaContractorUmbrella]

Yes, absolutely but let's take the case where the expense would be allowable if the worker was trading as a LTD company so it's logical that the same expense should be allowable through an umbrella.

Not sure if all umbrellas do it but I've seen some that allow capital expenditure on expenses, the asset then becomes the property of the umbrella. They then permanently loan the asset back to the worker on a 3 year loan. The worker pays the umbrella a nominal amount of the value up front (say 5%) as an advance payment to buy the asset after 3 years when it's fully depreciated to zero value on their books. The net result is that the worker gets the tax back less 5% which goes in the umbrella's pocket. I don't know if that's the normal procedure or if it's a bit of an underhand way of doing things.

What do you think, Lisa?

I can't see how this would work in practise tbh - surely the contractor has to pay the umbrella company the full value of the asset at the point of purchase to avoid the umbrella company losing money?

[Wanderer]

Without wishing to be pedantic - an umbrella company's policy can only reflect what is allowed by HMR&C

Yes, absolutely but let's take the case where the expense would be allowable if the worker was trading as a LTD company so it's logical that the same expense should be allowable through an umbrella.

Not sure if all umbrellas do it but I've seen some that allow capital expenditure on expenses, the asset then becomes the property of the umbrella. They then permanently loan the asset back to the worker on a 3 year loan. The worker pays the umbrella a nominal amount of the value up front (say 5%) as an advance payment to buy the asset after 3 years when it's fully depreciated to zero value on their books. The net result is that the worker gets the tax back less 5% which goes in the umbrella's pocket. I don't know if that's the normal procedure or if it's a bit of an underhand way of doing things.

What do you think, Lisa?

[LisaContractorUmbrella]

+1

They aren't the spawn of satan. Suit a lot of people, for a lot of different reasons.

+2 definitely not the spawn of Satan (sure I would have noticed )

[ASB]

Despite what the big boys here say, Umbrellas aren't all evil and your manhood won't shrivel up and drop off if you use one - lots of contractors use them because they are an easy solution and you won't lose any sleep worrying about being visited by the tax man. If you are at all worried about the admin and tax position of running a LTD company then just go with the umbrella. Choose the quiet life, get on with your career and take the money at the end of the day.

Once you see your P60 from the umbrella and find out how much tax you paid, you may want to reconsider the LTD company route or if you may be happy to stick with the convenience of the umbrella. It's up to you.

+1

They aren't the spawn of satan. Suit a lot of people, for a lot of different reasons.

[LisaContractorUmbrella]

Quite right. The umbrella may also allow the expense - it's worth checking with a few of them to see what their policy is.

Without wishing to be pedantic - an umbrella company's policy can only reflect what is allowed by HMR&C

[Wanderer]

Even so, if you can demonstrate wholly etc then the expense can still be claimed (same as any other) through your tax return.

Quite right. The umbrella may also allow the expense - it's worth checking with a few of them to see what their policy is.

[Wanderer]

Anyhow, had a meeting with my account and he advised that if I wanted to continue the contract inside IR35, then there's very little benefit using a Ltd Co and to go the Umbrella route. The Umbrella will obviously charge for their service which I guess is comparable to account fee's, insurance, etc.

Despite what the big boys here say, Umbrellas aren't all evil and your manhood won't shrivel up and drop off if you use one - lots of contractors use them because they are an easy solution and you won't lose any sleep worrying about being visited by the tax man. If you are at all worried about the admin and tax position of running a LTD company then just go with the umbrella. Choose the quiet life, get on with your career and take the money at the end of the day.

Once you see your P60 from the umbrella and find out how much tax you paid, you may want to reconsider the LTD company route or if you may be happy to stick with the convenience of the umbrella. It's up to you.

[ASB]

Why is that a problem? It's a personal purchase if you're through a brolly.

Even so, if you can demonstrate wholly etc then the expense can still be claimed (same as any other) through your tax return.

[NotAllThere]

Why is that a problem? It's a personal purchase if you're through a brolly. ...

OK, for an IR35 contract, not an issue (unless your 5% is big). But for non-IR35, being unable to make business purchases definitely reduces income.

[IR35 Avoider]

I treat myself as IR35-caught, but it still makes a lot of sense to have my own company.

Three years ago I did briefly use an umbrella, but was only doing a handful of days here and there, and found the umbrella was worse from a tax point of view due to the way NI is calculated. This is admittedly an unusual situation.

I calculated that I would only have to work 40 days before running a company would be cheaper than using an umbrella. My online accountant charges less per year than an umbrella would, and their fee is more than offset by profit I make on flat-rate VAT. In slightly less than two years of invoicing I've clocked up over £5000 bonus income from flat rate VAT, and my accountant is well under £1000 a year.

[LisaContractorUmbrella]

It's all I think about at the mo

This particular contract is inside IR35 so after six months (assuming it won't be extended), I'll take some time off (assuming my ever changing plan goes ahead).
I guess it's a choice of paying an Umbrella 6 months or paying accountant 12 months for this particual piece of work (the accountant will treat me as a "normal" PAYE inside IR35).

Still a good idea to use Umbrella ?

Having read the other threads that you have posted on here IMHO it is a very good idea for you to work with an umbrella company for a few months until you fully understand what is involved in being a contractor - there is a lot to learn and you can get in a right muddle if you get it wrong

[malvolio]

Really? Try buying a new laptop through a brolly.

Why is that a problem? It's a personal purchase if you're through a brolly.

The whole brolly exenses thing is a bit of sleight of hand anyway, in reality, albeit one that makes perfect sense commercially. But if you don't have a business, how can you have business expenses?

[NotAllThere]

If you work six months for one umbrella company and then work another brolly, then you will not be able to claim travel and subsistence expenses, as each position will be considered by HMRC to be a permanent place of work - different employers, different workplaces.

The six month break between contracts might also have this affect.

With a ltdco, you'd remain the employee, so "same employer, different workplace" = temporary workplace = claimable expenses.

Further, and this is the really important point from my perspective, with ltd co, YOU are in control of YOUR money. If you have a brolly, the brolly is in control of your money. If you have difficulty getting paid, for example, the brolly has little or no financial incentive to dun on your behalf.

As far as accountancy is concerned, you could find one to do the work for you on a piece by piece basis, rather than yearly charge spread over 12 months. It'd probably overall cost the same.

.... Ignore expenses, they are the same either way.

Really? Try buying a new laptop through a brolly.