Reply to: Service Company- Composite to Limited

[redboy]

If one is a director rather than an employee/ member of a composite company are you more vulnerable in terms of your tax laibilities?

[Newby]

So who do you work for Bruno?????

[malvolio]

Does having your own company really tackle the issue of IR35? Don't you need a good understanding of IR35 manage the associated risks?

Well yes, and I do have a pretty good understanding actually. It's not that hard and the key points are well known - D&C, MOO and ROS, to use the jargon. The trick is getting them proerly represented in your contract.

There is enough knowledge out there in the public domain that you can make a reasonable determination by yourself, and there are people like B&C, Accountax and SJD who know the subject upside-down and backwards and will render a professional opinion and get the contract straight. OK, it costs a couple of hundred, but offset that against 15% of your tax liability for the duration...

And the smart move is to join the PCG and use their insurance to pay for any investigations and their undoubted expertise to keep you out of trouble anyway. Isn't it?

[Bruno]

Composites

I would say the commercial advantages of using a managed provider is the convenience, cost due to economies of scale, being guided through IR35 and health & safety and in some instances being protected from not being a director with associated responsibilities.

That being said the choice is clouded because some service providers offer a poor and overpriced service. There is a significant difference in the cost of different providers and some are not managing risks appropriately. This may be addressed by HMRC tackling compliance as part of the ongoing consultation and we need an independent body looking after the interests of contractors to tackle the value for money issue, to tell us who is good and bad as this is a major issue for contractors?

If all managed service providers were compliant and offering a value for money service the efficiencies and convenience should be such that you could expect the majority of the market would use managed service providers unless you require accountancy services because of fixed assets, taking on employees etc.

Unfortunately there are a number of different parties all with their own self interest to protect muddying the water. Non compliant composite providers tell you they are compliant to win business. Umbrellas try and scare you into tax inefficient working. Accountancy firms try and scare you into paying overpriced fees by having your own company.

Does having your own company really tackle the issue of IR35? Don't you need a good understanding of IR35 manage the associated risks?

[malvolio]

They are IR35-compliant because they will only take on a contractor whose contract has been cleared by their own people to be outside IR35, and they have gone to great lengths to ensure they know what they are talking about on that subject.

Fair enough, but you are still paying someone else to run your company... and I personally can't actually see any other commercial advantages. But then I'm not really a fan of umbrellas of any kind if you are outside IR35.

[redboy]

What is everyones take on Brookson then? Apparently they have HMRC approval that their systems are fully IR35 compliant. A number of contractors I know use them. Is this worth anything?

[Bruno]

Compliance

Dear all

If you are a genuine contractor you should use a limited company because the tax savings are significant. You do not have employee rights and protection so you are entitled to a beneficial tax position. Do not fall for the “fear” promoted by umbrella companies as their business model is built on scaring genuine contractors into tax inefficient homes.

The issue in the market at the moment is one of compliance. HMRC is looking to tackle non compliant service providers not the mechanism of limited company or composite working (a composite is the same legal structure as a limited company). Gabem have lost their gross payment certification because they are not complying with IR35. The failure to renew the Ganem’s CIS certification is the first shot at a non compliant provider. Can expect non compliant providers to be tackled with vigour following the consultation? This may only be the start for Gabem.

However, there are compliant providers in the market the trouble is spotting them because a non compliant provider will not tell you they are non compliant.

What makes you compliant from an IR35 perspective? I agree structure is nonsense. To be covered from IR35 you need a qualified lawyer looking at your contract and working practices. There are some composite providers who do this. There are some providers that have agreed procedures with HMRC and agreed settlements such that their contractors have no historic IR35 liabilities. This is real! Ask composite providers how they address compliance. The answer should involve assessment of working practices and review of contracts by qualified experts. This is safer place than your own limited company, you may be grouped and more visible but you are grouped in a safe place. I agree you may be more visible to HMRC using a composite but you are far from invisible using your own limited company.

If a provider is asking you to make the decision however the decision is “dressed” up by using slick on-line contract checks do not go near this provider. Unless you are very experienced you are not in a position to determine your own status.

Some providers use insurance to back out your IR35 risk, some policies cover fee only and some claim to cover liabilities and fees. Insurance can work if it covers liabilities as well however be cautious that this still means you have a greater likelihood of HMRC looking at you because you are a member of a non compliant group and merely using a financial product to cover your risk. The safest place for you is a provider with agreed HMRC approval because they have been looked at already by HMRC and had sign off.

Most providers do not make shareholders directors. Gabem did and this was the basis for their claim you were outside IR35. This was one of the weakest claims in the market. Being a director has significant implications. You are taking on director responsibilities and getting someone else that is potentially non compliant to manage your responsibilities. The tax bill ultimately rests with the director. The provider should be the director. Do not be tempted with the small financial benefits that are sometimes offered by providers such as directors’ fees to squeeze additional return as the risk implications of being a director are significant.

Thanks

[redboy]

I know others have done here so so shouldn't be a problem as far as they are concerned, its just a case of making the invoice payable to a different party. I was more concerned that it might look bad from the point of view of the taxman.

[dmini]

Some agencies won't let you switch eg umbrella-limited etc mid-contract - you have to wait for a renewal point. Been there, done it.

[Pondlife]

Does it cause me a problem to continue working for the same client ? i.e 1 week I am working there through a composite company, the next week I am working there as my own limited company. Does it cause nay problems as far as IR35 status?

Wouldn't have thought so. They should just draw up a new contract/schedule for the date you start with your Ltd. ~They may winge about the additional admin but they wouldn't risk losing the gig over it.

[redboy]

I would stay away from Managed companies - that is, paying for someone to set up an off the shelf company (Their Co xxxxxxx Ltd) and manage it 100% for you. Technically it is a Ltd Co where you are the sole director & shareholder but they manage the tax/paye/VAT etc and also the company bank account (if there is one).

In the budget report section 5.86 states that:

As mentioned before - decide on a company name, get an accountant who can help with setting up, many will also help with PAYE and act as your agent to the tax man but with YOU still in control.

HTH

Does it cause me a problem to continue working for the same client ? i.e 1 week I am working there through a composite company, the next week I am working there as my own limited company. Does it cause nay problems as far as IR35 status?

[malvolio]

No it isn't, if you do a bit of research. Now go back to your toys and leave the grown-ups alone.

[stevie]

conflict of interest?

I presume the advice from SJDAccountancy is to use the services of Contractor Umbrella (since they own them).

[simondolan]

QUOTE: "If you are "within IR35" what are the implications for the end client? Are they laiable for employers NI contributions, etc?"

No, within IR35 you are liable for all your own taxes and NI - the end user or agent simply pays your your contract rate.

[malvolio]

Thud...thud...thud...

No. You are. The joy of being a contractor is that you have to pay all the money, that's why they pay you gross and that's why you need to talk to accountants like Simon who can explain exactly what you're getting into.

You clearly haven't done any research into the business you are now in, so go read the sticky thread on this board, the first timer guide on this site and the first timer guide on the PCG website at www.pcg.org.uk

Then come back with any bits you don't understand.