Umbrella vs. Limited

[splishsplosh]

Hi there everyone.

Yes, I know what you're all thinking. This person hasn't read any of the forum or the website. There's a whole section dedicated to newbies out there etc.

I took up my contract a few months ago. It was my first time contracting, and I was influenced by the agency to go with Giant. Admittedly, Giant have made things very easy for me. Submitting receipts is a breeze, and receiving payslips and the rest is very good too. I'm ultimately very impressed with them, and I appreciate they take away a lot of administrative things that I have no clue about.

However, only ending up with ~65% of your contract is a bit naff, so I'd like to pose two questions for the rest of the board, if that's okay.

1 - What's the best Umbrella company to go with in terms of how much of your contract you can retain?

2 - Is going Limited really worth it? In terms of a percentage increase, are the gains marginal or worth it?

Thank you everyone, and I do know that you've probably seen all of this a million times before. Any help would be gladly appreciated

[LisaContractorUmbrella]

Your take home pay will not be significantly different if you move to another compliant umbrella company as we all pay through PAYE; the only difference should be the difference in margin that the umbrella company retains. You could, according to various adverts on Google, take home up to 93% with a company that calls itself an umbrella company but is, in fact, a tax avoidance scheme - if you've read through this section HMRC Scheme Enquiries, you will appreciate that this action carries a significant risk.

You could go Limited and, if you're outside IR35, your take home pay will be higher than it is now IR35 Legislation - Advice, Help and Information for UK Contractors. You will have responsibilities as the Director of a Ltd Co and you need to know what they are before you start. If you go Ltd find a good accountant that knows the industry.

HTH

[TheFaQQer]

1 - What's the best Umbrella company to go with in terms of how much of your contract you can retain?

The only difference they can make is on their fees - they have the same expenses policy because that's laid out by HMRC, they pay the same NI and PAYE because that's dictated by HMRC.

Anyone who says they can do it differently is either not doing it legally, or lying to you.

2 - Is going Limited really worth it? In terms of a percentage increase, are the gains marginal or worth it?

It's worth it if you are outside IR35 and want to take on the responsibility of running the company. It's marginally worth it if you are inside IR35 and want to take on the responsibility of running the company.

But make sure you know what you have to do, and do it right, before you jump into it.

[splishsplosh]

Thanks to both of you who have answered. I appreciate it, especially with regards to the tax schemes as it's very easy to fall into that trap. I had ContractorAngels quickly renege on a deal they wanted to do with me after I told them HMRC wouldn't be too happy!

Again, I'm sure this has been answered a thousand times before, but how can I find out whether I fall under the remits of IR35?

If I am under IR35, are there avenues of avoiding it?

[LisaContractorUmbrella]

Thanks to both of you who have answered. I appreciate it, especially with regards to the tax schemes as it's very easy to fall into that trap. I had ContractorAngels quickly renege on a deal they wanted to do with me after I told them HMRC wouldn't be too happy!

Again, I'm sure this has been answered a thousand times before, but how can I find out whether I fall under the remits of IR35?

If I am under IR35, are there avenues of avoiding it?

The link I put in my reply will explain how IR35 works so read through that first and then, if you think you may fall outside, contact a professional organisation such as Qdos or Bauer & Cotterell to review it for you. If you are inside IR35 you can negotiate your working practices with the agency/end client so that you will fall outside but other than that no, you can't 'avoid' it if you are inside.

Are you just looking at ways to reduce your tax liability??

[cojak]

Thanks to both of you who have answered. I appreciate it, especially with regards to the tax schemes as it's very easy to fall into that trap. I had ContractorAngels quickly renege on a deal they wanted to do with me after I told them HMRC wouldn't be too happy!

Again, I'm sure this has been answered a thousand times before, but how can I find out whether I fall under the remits of IR35?

If I am under IR35, are there avenues of avoiding it?

You are either not 'under' IR35 (your working practices and contract mean that you are not a disguised employee and are working outside of IR35), or you are 'under' IR35 and must pay the tax.

Take a look here for more information:
IR35 Legislation - Advice, Help and Information for UK Contractors

[northernladuk]

Hi there everyone.

Yes, I know what you're all thinking. This person hasn't read any of the forum or the website. There's a whole section dedicated to newbies out there etc.

Would we be correct?

[splishsplosh]

The link I put in my reply will explain how IR35 works so read through that first and then, if you think you may fall outside, contact a professional organisation such as Qdos or Bauer & Cotterell to review it for you. If you are inside IR35 you can negotiate your working practices with the agency/end client so that you will fall outside but other than that no, you can't 'avoid' it if you are inside.

Are you just looking at ways to reduce your tax liability??

Thanks Lisa, that's a really informative answer!

I do just want to reduce the amount of tax I pay.

You are either not 'under' IR35 (your working practices and contract mean that you are not a disguised employee and are working outside of IR35), or you are 'under' IR35 and must pay the tax.

Take a look here for more information:
IR35 Legislation - Advice, Help and Information for UK Contractors

Thanks cojak, again very informative

Would we be correct?

No, you wouldn't. I have read the vast information contained on this website, yet I'm still not that much the wiser, hence me creating this thread in the first place. It wasn't born out of laziness, I just simply wanted some clarification on some points, which others have been very kind enough to help with.

[malvolio]

I have read the vast information contained on this website, yet I'm still not that much the wiser, hence me creating this thread in the first place. It wasn't born out of laziness, I just simply wanted some clarification on some points, which others have been very kind enough to help with.

If you have then you will know about IPSE as well then....?

[LisaContractorUmbrella]

Thanks Lisa, that's a really informative answer!

I do just want to reduce the amount of tax I pay.

Ok, as a contractor, you have 3 ways of working:

1. You can open your own Limited Company - if your working practices put you outside of IR35 then you will pay yourself a combination of salary and dividends and take home 70-75% on average. You can have a contract written to be outside IR35 but this would mean squat in the event of an HMRC investigation as they will be looking at what happens in reality, not what's written on a piece of paper. If you do get investigated you can expect HMRC to be your new best friends for quite some time - if you contracts put you inside IR35 they will look at recovering tax and NIC's owed, plus interest and penalties. That said HMRC have limited resources and the chances of being investigated are reasonably slim.

2. You can work through an umbrella company - you will be paid through PAYE - the umbrella company will settle their Employer's NIC's obligations from the contract value and retain their margin, the balance is your salary which is then subject to income tax and employee's NIC's. Your take home pay will be around 60% but it is probably the safest option if you go with an established and reputable umbrella company. The only danger is that you are entrusting your money to a third party initially so conduct proper due diligence before settling on a company to use.

3. You can sign up to one of the myriad of tax avoidance schemes that are on offer to contractors and take home up to (if the ads are to be believed) 93% of your income. This will involve you paying virtually no tax at all which will upset HMRC and probably result in you getting an APN and going through what these poor so and so's are going through http://forums.contractoruk.com/accou...58-fa2008.html or these HMRC Scheme Enquiries