PDA

View Full Version : Ltd Co. or Umbrella for IR35 ?



BNR32DBA
11th January 2004, 00:12
Hello all,

I may soon be embarking on my first contract and was wondering which option to choose.

I've searched past posts and the general recommendation appears to be go for a limited company unless you intend to contract for a short while. Assuming that my contract is caught by IR35 would it be better for me (i.e. more tax efficient) to create a limited company and pay me and my wife a salary or should I just go with an umbrella even though I could possibly be contracting for a while.

Cheers,

T.

www 1staccountancy biz
11th January 2004, 14:59
T.

First step would be to have your contract read over to see whether it is IR35 compliant as this will make a difference to how the income through your company is treated.

It tends to be more tax efficient to run a limited company for contracts greater than 6 months, especially if your contract is IR35 compliant.

On the subject of wages for your wife, this is a bit of a grey area. How much input does your wife have into the business? This makes quite a difference as to how much you can pay her & whether it is allowable in the first place!

BNR32DBA
12th January 2004, 00:16
Hi,

I'm going on a worse case scenario (i.e. assuming that the contract is not IR35 compliant). The contract is for 6 months but is likely to be extended - I will get it checked in the first instance to see if it is compliant.

I've been to http://calculator.contractoruk.com/ and it just appears that the net-pay calculators on most umbrella sites show that I'll make more money using them - don't know if this will be the case in practice.

Regards,

T.

fiddleabout
12th January 2004, 10:32
I saw a TV ad the other day for Persil - it said that Persil washes whiter than all the rest. I also saw one for Daz - apparently that washes whitest too. Closer to home try working out which combination of gas and electric supplier gives the best deal - they all claim to and all quote figures to prove it.

Don't be mislead by terms like "dispensation" etc. regarding expenses. If an expense payment is valid under an umbrella it is just as valid using a Ltd. If it is not then you run the risk of the IR later questioning it and demanding tax + interest + possibly penalties on hookey expenses claims.

The 6 months business applies not to the specific contract but whether you intend to continue contracting. If the 6 monther is just a temporary fill in and you want to return to a permanent job it simply is not worth the effort involved in setting up a company.

If you intend to contract long term and only want to submit genuine expense claims you can save money by using a ltd company with little extra effort. If you are happy to file unreceipted subsistance claims and take your chances on being caught then an umbrella may allow that more readily than an accountant who has some professional integrity.

If you are non-IR35 caught there is absolutely no competition - you can save a bundle (at the moment) using a ltd company.

BNR32DBA
12th January 2004, 19:50
Cheers gents, looks like I'll opt for the Ltd Co. route.

Regards,

T.

fiddleabout
12th January 2004, 22:50
Shop around for an accountant then. All the ones who advertise on this board are reputable, you can checkout local accountants (but they may be more expensive - it's up to you to decide if they offer VFM) or you can use the one I do - Rhino is promoting it on one of our joint websites www.itdoctors.co.uk/accountant.php (http://www.itdoctors.co.uk/accountant.php) - I'll tell you up front that he gets a small introduction fee if you sign up (I don't - this bit is his as he does all the legwork on it)

*update*
We are in the process of setting up a more comprehensive site and I will be getting half of any profit on that - I now divert all Rhino's old spam links to the new site :)