Reply to: mortgage advice

[mudskipper]

With regards to take home pay, I'm not talking about what I pay myself each week (salary and dividends) I'm talking about that and what is left in my business account once I pay my corporation tax. The overall amount will be more than if I pay myself a normal salary as PAYE. And if I still haven't 'got it' then shoot me down. Advice would be preferred rather than criticism.

If you're inside IR35, then you shouldn't have corp tax which is on the profit of your business - you won't be making 'profit'. Basically you take everything as salary (less expenses).

[Elliebank]

Yeah, your pay will go up a lot!!!!

Why, after reading your personal situation, did you decide to take on contract work? What will you do when your 'employer' uses the fact you have zero rights and no notice period to bin you off and you can't travel so end up for 2 to 12 months on the bench?



But don't kid yourself. You say


Which would further lead to think that the contract is a sham just for you to carry on. The contract should reflect working practices, not meet guidelines. HMRC only have to chat to your employer and your contract defence will just fall around your ears. Reviews will not always give a true representation if they do not fully know all the facts and everyone in the loops is playing the game.

Don't consider getting a new accountant if your old one didn't bring this up. You must get one.

I would also suggest you don't dismiss the umbrella option too quickly. TCP is correct a LTD can still work slightly in your favour but it comes with responsibilities. An umbrella will be much simpler and not have the same level of responsibility. You mentioned your take home pay will change. I read in to this you don't fully understand how you are remunerated from an LTD.

You make a lot of presumptions. I handed my notice in to become a contractor as I have done it before (before I had children), I know there is a lot of work available and I am good at my job and was never out of work when previously a contractor. I lined a contract up with a competititor of my employers. When I handed my notice in to go contracting they tried increasing my salary to entice me to stay which I refused. Then, as they already work with a number of contractors they offered to take me on as a contractor on a better hourly rate than the one I had lined up and therefore I agreed to that. They have a different standard contract for contractors than their perm staff (obviously) and when I brought up IR35 HR simply pointed out the points of the contract that inland revenue would look at and the differences between a perm contract, just to help me out as I didnt fully understand IR35. There is no sham at all and if I was to lose the contract I am confident I would get another one elsewhere. Although obviously I realise that I could still be caught in IR35 as I was a previous employee.

Not sure where I said I can't travel? I can.

FYI as I'm sure something is going to be said about this, I was paid through an umbrella company when I was previously a contractor as when I started as a contractor the first time I never even knew I could do it as a ltd co, and only learnt about it thru other contractors when I was working with them.

With regards to take home pay, I'm not talking about what I pay myself each week (salary and dividends) I'm talking about that and what is left in my business account once I pay my corporation tax. The overall amount will be more than if I pay myself a normal salary as PAYE. And if I still haven't 'got it' then shoot me down. Advice would be preferred rather than criticism.

[jamesbrown]

OK thanks a lot for the advice, will get a review done.

You should do this, but make sure you don't simply have your contract reviewed without explaining the scenario and working practices carefully to the reviewer. It's highly likely, based on what you've described, that you will be operating inside IR35 on this contract, so I'd be surprised if the advice came back to the contrary, and it's ultimately the working practices that matter.

I agree with the comments above about retaining the Ltd (even though that might not have been the decision you'd take now) and securing an accountant that's familiar with contracting and IR35. You'll need to operate what's known as a "deemed payment", whereby 95% of the income on that contract is subject to ordinary payroll taxes and the remaining 5% is allowed for expenses (or dividends), regardless of the actual expenses incurred. If you're on the VAT FRS, that income also counts in the deemed payment.

[TheCyclingProgrammer]

OK thanks a lot for the advice, will get a review done.

Remember a contract review alone is not worth much if your working practices do not reflect it. As NLUK says, any contract can be worded so it isn't caught by IR35 but if it's a sham HMRC will look through the contract and evaluate your working practices on their own merits (and they can interview your ex employer).

If after everything it's determined you're definitely inside then all is not lost. You'll be paying a bit more tax but you'll still be earning more money overall (I'm guessing).

If you're contract is found to be outside and your working practices support this, then do not hesitate in taking out a PCG+ membership for extra protection.

Good luck.

[northernladuk]

Re IR35 - you are all completely right and unfortunately I didn't realise all this when I took the contract on. I did do a little research and spoke with my 'employer' who worded my contract accordingly but after your comments I have realised that I am at great risk, after doing a lot of research today. So I was going to end the ltd company and go umbrella, I realise this will effect my take home pay but at the end of the day I'm still on a lot more than I was as perm. But then I saw I could actually keep the ltd co on and work inside ir35. I should be with this company for quite a while and may even go back perm so I defo don't think I should even try to say I'm outside of ir35. Any advice is much appreciated, I just wish I'd gone umbrella from the start.

Yeah, your pay will go up a lot!!!!

Why, after reading your personal situation, did you decide to take on contract work? What will you do when your 'employer' uses the fact you have zero rights and no notice period to bin you off and you can't travel so end up for 2 to 12 months on the bench?

Finally, despite everything, it's not necessarily a given at you ARE operating inside IR35. It ultimately depends on your contract and working practices. Get both of these reviewed by a professional. QDOS offer a contractor review service and they even throw in a few reviews with their insurance products.

http://www.contractoruk.com/ir35/ins..._employer.html

It's not impossible to work for your previous employer as a contractor and be outside IR35 if you can show either a lack of mutuality of obligation, direction and control (the fact you work from home might help here) or that you have a right of substitution. It's not possible to say for sure without knowing your exact circumstances or what's in your contract so I'll just reiterate that you need to speak to a professional about this.

But don't kid yourself. You say

'employer' who worded my contract accordingly

Which would further lead to think that the contract is a sham just for you to carry on. The contract should reflect working practices, not meet guidelines. HMRC only have to chat to your employer and your contract defence will just fall around your ears. Reviews will not always give a true representation if they do not fully know all the facts and everyone in the loops is playing the game.

Don't consider getting a new accountant if your old one didn't bring this up. You must get one.

I would also suggest you don't dismiss the umbrella option too quickly. TCP is correct a LTD can still work slightly in your favour but it comes with responsibilities. An umbrella will be much simpler and not have the same level of responsibility. You mentioned your take home pay will change. I read in to this you don't fully understand how you are remunerated from an LTD.

[Elliebank]

OK thanks a lot for the advice, will get a review done.

[TheCyclingProgrammer]

I'll still be able to offset my expenses won't I? I work from home and do a little travelling. Sorry it may say in that link you posted but gonna wait till the kids are in bed before I read that then I can read it properly!

The link I posted should cover what you need to know but a good accountant will be able to give you more detail.

Finally, despite everything, it's not necessarily a given at you ARE operating inside IR35. It ultimately depends on your contract and working practices. Get both of these reviewed by a professional. QDOS offer a contractor review service and they even throw in a few reviews with their insurance products.

http://www.contractoruk.com/ir35/ins..._employer.html

It's not impossible to work for your previous employer as a contractor and be outside IR35 if you can show either a lack of mutuality of obligation, direction and control (the fact you work from home might help here) or that you have a right of substitution. It's not possible to say for sure without knowing your exact circumstances or what's in your contract so I'll just reiterate that you need to speak to a professional about this.

[Elliebank]

Cross posted! Thanks

[Elliebank]

I'll still be able to offset my expenses won't I? I work from home and do a little travelling. Sorry it may say in that link you posted but gonna wait till the kids are in bed before I read that then I can read it properly!

[TheCyclingProgrammer]

Thanks. I do have an accountant and she is aware of IR35 but not sure how expert she is at it. What about my NI?

It all gets calculated by your payroll. In essence, treat the income from the contract, minus allowable expenses, as salary and pay it through your payroll in the normal way.

If you're not sure how much your current accountant knows about IR35, then ask yourself why they never brought it up with you before regarding your current contract. Given it is with your previous employer, it should have set alarm bells ringing for them. If it didn't, I'd be worried. Consider finding a new accountant (again, representatives of many reputable firms post on here).

[Elliebank]

Thanks. I do have an accountant and she is aware of IR35 but not sure how expert she is at it. What about my NI?

[TheCyclingProgrammer]

If you're confident you're caught (and certainly on the facts presented it sounds like you should be if your working practices are unchanged, but do have your contract reviewed anyway), then there is no need to dump the Ltd Co and use an umbrella.

Working through YourCo will probably still be beneficial in the long term especially if you take on a new contract that is outside IR35.

You can work inside IR35 through YourCo, it just affects how you distribute the income from that contract and the expenses you can claim. In short, the profit from the contract has to be distributed through your payroll.

Read this:
http://www.hmrc.gov.uk/leaflets/guide_limitcomp.htm#4

You will get advice in here but your accountant should be able to sort this all out for you. If you don't have an accountant, then get one ASAP and make sure it's one that knows about contracting and IR35.

Given when you started, you should have plenty of time to get your house in order by the end of the tax year. Do it now, and you'll have nothing to worry about. Don't leave it.

Finally, I think you should follow Power Mortgages advice and try and recover your costs from your current broker and find a new one. Do a search on his forum for mortgages, there are several brokers on this forum that could help you. I've been working with Ben @ Power Mortgages and can recommend him.

[Elliebank]

My mortgage broker did run my situation through with an underwriter at virgin money (apparently) and they seemed to think it'd be OK?!! Yes we've paid the £99 mortgage fee and for the survey, but we may be able to use the survey with another lender.

I have contacted a contracter mortgage broker yesterday, he has got some info from me and he is going to approach some lenders on Monday, but he seems to think that the fact we only have 10% deposit AND are keeping our house on to rent will make us struggle to get one. We weren't originally keeping our house on but the sale fell through this week. We only have 10% deposit whether we sell the house or not, that was the equity in the house and now my parents are paying it till the house sells (which will be done eventually). Unfortunately when we bought this house we took out a 100% mortgage, my husband is on a pretty low wage, we've had 2 kids so I've been on maternity/part time so that's why we just have the 10%.

Re IR35 - you are all completely right and unfortunately I didn't realise all this when I took the contract on. I did do a little research and spoke with my 'employer' who worded my contract accordingly but after your comments I have realised that I am at great risk, after doing a lot of research today. So I was going to end the ltd company and go umbrella, I realise this will effect my take home pay but at the end of the day I'm still on a lot more than I was as perm. But then I saw I could actually keep the ltd co on and work inside ir35. I should be with this company for quite a while and may even go back perm so I defo don't think I should even try to say I'm outside of ir35. Any advice is much appreciated, I just wish I'd gone umbrella from the start.

[Power Mortgages Ltd]

I think you misunderstood me. I wasn't saying that it wasn't possible to get a mortgage without at least 2 years, I just meant that OP's broker should have known that this particular lender (Virgin Money) would require it before it even got to the application stage and should have recommended a more flexible lender in the first place. Lenders make their requirements clear to intermediaries, so they should know what each lender is looking for.

What TCP said.

What on earth the original broker was thinking placing the application with Virgin Money?! As intermediaries we have access to lender's criteria and any half decent broker will have a good understanding of a lender's criteria anyway.

Virgin Money need you to have been contracting 2 years to consider lending to you based upon a multiple of your contract rate or they need 2 years or finalized Limited Company accounts in order to assess your as a Limited Company Director. You meet neither of these points so the broker shouldn't have placed the application with Virgin Money in the first place.

I assume you have lost the £99 booking fee you paid to Virgin Money upon submission of the application and also possibly the valuation fee if the valuation was conducted?

If this is the case I would if I were you seek to get the broker to refund these to you from their own money as they are at fault of recommending the mortgage in the first place and had they done their research properly, you wouldn't have submitted an application to Virgin Money and lost out on the £99 booking fee (plus valuation fee if applicable).

I would strongly suggest you to seek help from a contractor specialist though as most lenders wont be able to assist with your circumstances although there are possibilities with only a 10% deposit depending upon your circumstances.

[TheCyclingProgrammer]

Not quite true. I applied with less than 2 years (Halifax at the time I think) and they were more than happy to contact my accountant to verify the one year and current progress using my permie to fill in the gaps.

I think you misunderstood me. I wasn't saying that it wasn't possible to get a mortgage without at least 2 years, I just meant that OP's broker should have known that this particular lender (Virgin Money) would require it before it even got to the application stage and should have recommended a more flexible lender in the first place. Lenders make their requirements clear to intermediaries, so they should know what each lender is looking for.

I am sure TCP will have a much more relaxed view on this but being an example of exactly what HMRC doesn't want doesn't bode well.

No idea why you would think that. As I said, OP should make absolutely certain of their status with regards to IR35 and my view is that it's very likely they are caught, based on what they said. But there's nothing wrong with that, as long as they are either paying themselves a full commercial salary or making an IR35 deemed payment. Being caught by IR35 is not the end of the world, nor will it give OP any problems as long as they are taxing themselves correctly.

For all we know OP knows this and has already discussed this with their accountant/had their contract reviewed (as it's not a complete given that it's caught) and it seems a bit unfair on OP to make assumptions about their circumstances.

Going from permie to contractor for the same company in essentially the same role is a huge pointer to being inside IR35, for sure, and the likelihood is that OP's contract is caught, but all contracts are evaluated with regards to IR35 on the same basis regardless. The usual tests apply.