Short-term contracting outside IR35

[WhiteRoses]

Hello

I have a question regarding short-term contracting I was hoping someone could help with (I searched the forums for the topic but didn't manage to find anything).

I've operated a limited company for 2 years now as I have been on freelance contracts, but I'm hoping to get a permanent job this year.

My limited company YE is July, so effectively I've just gone into a new tax year, and I don't want to incur a year's accountancy fees if I'm not going to be contracting for much longer.

I have decided that closing the limited company and using an umbrella agency for what will hopefully be my final few short-term contracts is the best solution.

Would this be the best route to take, bearing in mind that the money I'm earning won't be enough to offset the accountancy fees given the tax savings? I understand how umbrellas work, and they seem like an excellent solution for short-term contracting.

The only thing throwing me is the IR35 situation, since most of the information I've read states that umbrella companies are 'best for short-term contracting inside IR35'. I don't think I'll be inside IR35 as I plan on only taking on short-term contracts, which leads me to question whether the umbrella route is the best, or if there's an alternative I'm missing.

Any help much appreciated.

[kingcook]

The best solution would be to keep open the limited company for the remaining few contracts.

Accountancy fees cost approx £100 to £120 per month. If you're not earning that much to pay for that, you seriously need to look into increasing your rate.

[Kenny]

Short-term contracting outside IR35

Good morning,

If you have not in the past extended your company year, this can be extended for up to 6 months, which should reduce the accountancy fees you pay as you will not have to pay for a second years’ worth of accounts, just an extension of the original period.

This is provided you have not already completed the July company year end accounts.

By using an umbrella company, your earnings would be treated as salary in which case IR35 would not be an issue for the short term contract.

[LisaContractorUmbrella]

IR35 determines the way that you are paid - outside - dividends; inside - PAYE. As you will be paid PAYE through an umbrella company IR35 becomes irrelevant. One thing you should bear in mind is that, if you will only be working on a single assignment through the umbrella company and know that you will be taking a permanent job after the assignment you won't have an entitlement to tax relief on expenses for travel, subsistence and accommodation as your workplace will automatically be considered permanent.

HTH

[Martin at NixonWilliams]

I assume you are under the impression your accountant is going to charge you another 12 months fees for your final few months contracting - this is unlikely to be the case.

It should be possible to extend your company's yearend by a few months which reduces the work involved significantly as accounts will effectively be prepared for one, longer period.

I hope this helps.

Martin

[TheFaQQer]

I don't think I'll be inside IR35 as I plan on only taking on short-term contracts

Length of contract has no relevance to IR35 - if all three of the key indicators are present, then it's inside IR35.

You may be less likely to get caught, since the tax take would be much lower, but the status is unaffected by contract length.

[WhiteRoses]

Thanks for the responses.

You're right – I was assuming an entire years worth of accountancy fees would be charged, glad to know that won't be the case. In that instance it does make sense to keep the limited operational.

[WhiteRoses]

So, my accountant tells me that my year-end can't be moved (since it was already moved once in the last 5 years) and that their fees would remain the same even if I only used the company for a couple of months.

Given that, I'll make the switch to umbrella and close the company. With the umbrella, I only pay the subscription on a week-by-week basis for each contract I undertake, correct? Rather than, say, an annual signup.

[Martin at NixonWilliams]

So, my accountant tells me that my year-end can't be moved (since it was already moved once in the last 5 years) and that their fees would remain the same even if I only used the company for a couple of months.

Given that, I'll make the switch to umbrella and close the company. With the umbrella, I only pay the subscription on a week-by-week basis for each contract I undertake, correct? Rather than, say, an annual signup.

Have you extended your yearend previously? You can shorten it as many times as you like but it is true that it can only be extended once every five years (unless the company is in administration or the yearend is being aligned with a subsidiary/parent company).

In any case, although a lot of the accountants work is the same whether you have traded a few months or twelve months, twelve months fees seems a bit high to me. I would try to negotiate a discount based on your circumstances, and then weigh up the costs and take home pay etc. vs. an Umbrella.

[TheFaQQer]

Given that, I'll make the switch to umbrella and close the company. With the umbrella, I only pay the subscription on a week-by-week basis for each contract I undertake, correct? Rather than, say, an annual signup.

Some, if not all, umbrella companies have a minimum period of billing before they will take you on - IIRC, ContractorUmbrella requires a six week minimum. So make sure you know what you are signing up for and ensure that what you want to do is feasible.

When considering closing the company, make sure you factor in the costs of doing that as well before you make your decision.

You could just do the accounts yourself (there are people on here who do) and get rid of the accountant completely. I would suggest that if you are doing that, you ensure you have a good understanding of what needs to be done, when and how to do it.