Advice on expensing R&D and "umbrella" company

[tom667]

Hi all,

I'm an electronic engineer. I've generally always worked as a salaried engineer but have been lured over the world of contracting for a short-term (6 month contract). So since this is my first time contracting I'd appreciate some advice.

I have already formed a limited company for some prior work that I have done (less than £1,000 GBP) so the taxman does not get too upset. I will continue to use that registration.

I would hope that some helpful folk on here would be able to guide me through whether what I am doing is a sensible arrangement. Obviously I will seek final advice from an accountant.

I will be contracting for a company at 30 hours/week at a rate around £40ph. I've verified IR35 and we should be good to go because I meet the right to substitution, I can perform the work as required at home (at my home office, although some work will be on site) and I have the option to decline to take work if I desire. I will however be contracted for a minimum 6 month period.

In addition, I will be performing work for other clients on an occasional basis (approx 10hrs/month). This work will not be contracted - it will be as and when required.

Finally, in spare time I will be working on my own R&D projects. The R&D project involves purchasing a large amount of components and equipment to develop something that I would hope could become a commercial product. There is no income from the R&D work at this time, only expense. And it will be performed in my home office, and will also require the purchase of equipment such as an oscilloscope, which will be for company work only.

The questions are:
- Can I expense things for the R&D project (working for myself to develop a product that may have future commercial value) through the same company that I use for my contracting - and from a tax perspective is this beneficial (as I can write-off expenses pre-tax, and reclaim VAT?)

- Can I work for multiple clients through my limited company and does this have benefits from an IR35 perspective even though I will be contracted to work an amount of hours per week?

- R&D Tax Credits ... would any R&D work I perform be eligible under the R&D tax credits scheme?

- I have existing lab equipment that was initially purchased for private use but I would be considering transferring this to the company as an asset, so would sell the assets to the company from my private person. Would this be acceptable and would there be any benefit to doing this (e.g. depreciation write-offs)?

Thanks,
Tom

[northernladuk]

Can I work for multiple clients through my limited company and does this have benefits from an IR35 perspective even though I will be contracted to work an amount of hours per week?

Of course you can. That's how a business works.

Ir35 benefit. No it doesn't. IR35 is assessed per contract. It would be a minor bit of defense if the worst happened but not directly helpful. You could have 5 clients and be inside for all 5, inside for 2 and outside for 3 etc.

If equipment is used for generating income for the business then definitely transfer it at (cough) market rates for that equipment in that state. The cost is pre tax so some tax saving benefits for you. It would be worth getting an accountant at some point and going through all this with them.

R&D is always a bug bear of mine and I'll admit I've been proven wrong on here but many examples of what people might call R&D just seem like product creation which is called out in the guidance. It's a fine line.

If you've looked in to it then I'll shut up but some useful guidance is here.
https://www.google.com/url?sa=t&sour...Gl2bliHarvyRHu

[WordIsBond]

I will be contracting for a company at 30 hours/week at a rate around £40ph. I've verified IR35 and we should be good to go because I meet the right to substitution, I can perform the work as required at home (at my home office, although some work will be on site) and I have the option to decline to take work if I desire. I will however be contracted for a minimum 6 month period.

If you are contracting for a large company it is going to be their opinion, not yours, that matters. Just saying.

In addition, I will be performing work for other clients on an occasional basis (approx 10hrs/month). This work will not be contracted - it will be as and when required.

This will obviously help with IR35. When you say 'not contracted', I hope you'll have a purchase order or something in writing. In other words, you'll have a contract of some kind. I think you mean 'no guaranteed number of hours'?

Finally, in spare time I will be working on my own R&D projects. The R&D project involves purchasing a large amount of components and equipment to develop something that I would hope could become a commercial product. There is no income from the R&D work at this time, only expense. And it will be performed in my home office, and will also require the purchase of equipment such as an oscilloscope, which will be for company work only.

The questions are:
- Can I expense things for the R&D project (working for myself to develop a product that may have future commercial value) through the same company that I use for my contracting - and from a tax perspective is this beneficial (as I can write-off expenses pre-tax, and reclaim VAT?)

Yes, you can, and yes it should be beneficial. The only possible risk to it that I can see is if you mess up for one of your clients, they sue you, and your company will have assets (equipment, maybe by then a product) that they can take from you. If your Ltd has assets, you want to be sure of your Professional Indemnity Insurance.

- Can I work for multiple clients through my limited company and does this have benefits from an IR35 perspective even though I will be contracted to work an amount of hours per week?

Yes you can, and yes it will have benefits re: IR35. IR35 is on a contract by contract basis so it does not shield you from IR35 issues. But it is certainly easier to claim 'in business for myself, not a disguised employee' when you have multiple concurrent contracts. Given the other things you've said it should make you very safe -- unless your client makes a lazy 'inside' determination come April.

- R&D Tax Credits ... would any R&D work I perform be eligible under the R&D tax credits scheme?

Maybe. New product development does not necessarily apply. Read the link NLUK gave you. If you still think it applies, I strongly recommend going through the Advance Assurance process. Unlike some other parts of HMRC, they are extremely helpful. I have done this. They will get on the phone with you and tell you exactly what does and does not apply, and what expenses are eligible -- your equipment probably won't be. It's eligible for business expense but probably not for the tax credit -- mostly, that is going to be a percentage of your time applied to your salary, pension, and National Insurance payments. It won't apply to dividends. NOTE: depending on circumstances and how much time you spend on R&D, it may be worth paying a higher salary, even it incurs more NI and income tax, to get a higher R&D tax credit. Have your accountant crunch the numbers for you, if the R&D tax credit does apply.

ALSO NOTE: From what you've said, R&D is probably going to be very part-time for you, and as such, it probably won't be very much money. It may not be worth the hassle.... It is for me because I have an employee on it full-time -- my involvement is very limited in R&D, but since we're all in on it with the employee, it makes sense to get a share of my time in there, too.

- I have existing lab equipment that was initially purchased for private use but I would be considering transferring this to the company as an asset, so would sell the assets to the company from my private person. Would this be acceptable and would there be any benefit to doing this (e.g. depreciation write-offs)?

If the equipment is being used for a project that is going to produce, or hoped to produce, income, then of course it would be acceptable. You may wish to discuss with your accountant whether it is better to sell the equipment to your company, or to lease it to your company. Whatever payment is made obviously has to be defensible based on an approximate market value. Lease income will presumably be subject to income tax but not National Insurance.

[tom667]

Thanks everyone.

Yes, I will have a contract for any sporadic work performed, I just mean it will not be guaranteed at an hourly amount. Just periodically available for that kind of work. I am doing 30 hours/week at this new contract because the money is not a problem for me. I would rather have some more time to myself and earn a little bit less.

I would expect the new product development could apply, as the product would fit within a novel R&D area, but I will look into Advance Assurance as described. It sounds like it may be worthwhile to me.

I have a meeting with an accountant next Friday.

Tom

[northernladuk]

If the work is that sporadic there is little chance you could be deemed inside then. Permies don't do that so will be very difficult to argue its disguised employment.
If you can convert the contract to read like some kind of call off thing you'll be golden.