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MooseMunch
8th November 2011, 10:31
Firstly, hello everyone! :happy

I've decided to take the plunge into contracting after working permanently for around 4 years. I have an interview setup next week, and I've spent the past 2 weeks reading around the subject, mostly these forums and guides on other websites.

I've got a couple of questions if anybody could help me with them, I've read some conflicting things in some of the guides and just want to clear some things up! Hopefully it will help some others too...


IR35 Status
1) If a [new] contract is inside IR35, you haven't yet signed, can you negotiate a re-draft to change the IR35 status? Is it a common thing to do? I'm working with the employer directly, no agencies involved (not sure if that matters).

2) If its outside IR35, would an umbrella company still be an option? I have read that they are all IR35 compliant and assume this to avoid potential problems if a contract is found to be inside IR35 at a later date.



Expenses
3) Can mileage be claimed to and from the workplace (standard place of work you are contracted to)? Some contracting guides mention that you can only do this for a temporary place of work.

4) I will probably be travelling 60 miles to work (and back I guess!)... If inside IR35, you can only claim 5% on your rate... If earning for example, 350 per day + meals, expenses would not cover this... is this something you just have to deal with?

5) When securing a new contract, would employers be put-off by potential expenses you may claim? (I'm looking looking to travel to work in a helicopter or anything!) but if you lived far away, would they generally prefer somebody local (assuming you have the same ability?) or is they some government scheme in place where they can claim some money back on expenses paid, so they don't care as much.


I assure you I have done my research first, just confused/interested about these few points!

p.s. I apologise for any typos! (If they are no typos, then ignore this bit :D )

northernladuk
8th November 2011, 13:17
I've decided to take the plunge into contracting after working permanently for around 4 years. I have an interview setup next week, and I've spent the past 2 weeks reading around the subject, mostly these forums and guides on other websites.

Only 4 years? 4 years since Uni, 4 years since you left school? That doesn't sound a lot. Could you tell us more.


IR35 Status
1) If a [new] contract is inside IR35, you haven't yet signed, can you negotiate a re-draft to change the IR35 status? Is it a common thing to do? I'm working with the employer directly, no agencies involved (not sure if that matters).

That is the defacto standard. Always get a contract reviewed by QDOS or others (QDOS do it free with PI/PL insurance) (search on here about PI/PL insurance as it is done to death). You can change the wording fine but if your working practices are deemed inside the contract won't matter. It is a balance of both. Get the contract right and then make sure the working practice reflects it.



2) If its outside IR35, would an umbrella company still be an option? I have read that they are all IR35 compliant and assume this to avoid potential problems if a contract is found to be inside IR35 at a later date.


You can still use an Umbrella. Returns are not as good as a Limited but I would always recommend someone new to try this first. Jumping in to contracting AND getting your head round the finances + LTD company can be mind blowing. Do 3 -6 months with Umbrella, get the hang of it then drop them when you feel more confident. You could of course go straight for LTD but you will have a lot of ground to cover fast.



Expenses
3) Can mileage be claimed to and from the workplace (standard place of work you are contracted to)? Some contracting guides mention that you can only do this for a temporary place of work.


This is where your understanding is starting to fail. Your standard place of work is where your business is registered to i.e. you house. Every cilent is a temporary location up to the point you KNOW you are going to be there over 2 years. (Read up on the 2 year rule).



4) I will probably be travelling 60 miles to work (and back I guess!)... If inside IR35, you can only claim 5% on your rate... If earning for example, 350 per day + meals, expenses would not cover this... is this something you just have to deal with?

Dunno about the inside but check out your Umbrella options first and get contract reviewed and then ask. You should be making yourself out of IR35 anyway so don't worry about the in IR35 expenses. These will be dealt with by the brolly.




5) When securing a new contract, would employers be put-off by potential expenses you may claim? (I'm looking looking to travel to work in a helicopter or anything!) but if you lived far away, would they generally prefer somebody local (assuming you have the same ability?) or is they some government scheme in place where they can claim some money back on expenses paid, so they don't care as much.


Again, take your permie head off. THey are not your employer. YOU are your employer, they are your client paying for your services. Permies are employed by the client not you.
You should not be claiming expenses to the client unless the contract says you can. Getting to work and feeding yourself is your problem. You are a business. Claim it against your LTD, not the cilent. You also do not claime expenses from a client, you invoice them from your LTD. (if you go brolly they employee you of course)



I assure you I have done my research first, just confused/interested about these few points!


I would argue you are missing the fundamental difference between being an employed permie and a contractor offering temporary service to a client. One that is very important. Fail this concept and you automatically put yourself inside IR35 regardless of contracts.

Zippy
8th November 2011, 18:45
NLUK makes some good points and I do agree it may be better to go umbrella until you find your feet.

IR35 is meant to stop you avoiding NI by taking money out as dividends instead of salary. This isn't possible with an umbrella company (as you are an employee of the brolly), but you can offset legitimate business expenses (train fares, mileage etc.) against your tax bill. Despite what they say, you'll get the same amount of money from every umbrella co (leaving their fees out of the equation).

Keep reading this forum and best of luck with the interview.

MarillionFan
8th November 2011, 18:50
I went contracting 4 years out of Uni, that was 14 years ago. Went LTD straight away.

I'd always recommend going LTD as I want full control over my money/taxes etc.

Wanderer
8th November 2011, 21:26
IR35 Status
1) If a [new] contract is inside IR35, you haven't yet signed, can you negotiate a re-draft to change the IR35 status? Is it a common thing to do? I'm working with the employer directly, no agencies involved (not sure if that matters).

Absolutely! Join the PCG and they can give you a contract template that you can use. It covers a lot of stuff that you wouldn't think of straight away and it's been reviewed to be bullet proof from an IR35 point of view. However, your working practices must reflect the terms of the contract - it's no use IR35 wise if you are really just a disguised permie.


2) If its outside IR35, would an umbrella company still be an option? I have read that they are all IR35 compliant and assume this to avoid potential problems if a contract is found to be inside IR35 at a later date.

If you go umbrella then you can forget all your IR35 worries. It's completely irrelevant because you are operating within the IR35 rules and paying PAYE, plus employee's NI, plus employer's NI. There are lots of Umbrella vs LTD calculators about, some of them (on umbrella sites) are a bit dodgy. Have a look at , plug in your values and see how much tax it would cost in/out of IR35 or LTD. Have a hard think about how much tax you could save by going LTD and decide if you are brave enough to run your own LTD. It's not that hard if you have a decent accountant and get them to deal with everything for you but Umbrella is better if you are no good with money/credit or you aren't sure if you are going to be contracting for the long term.


Expenses
3) Can mileage be claimed to and from the workplace (standard place of work you are contracted to)? Some contracting guides mention that you can only do this for a temporary place of work.

Yes you can claim for mileage, it sounds really dodgy but be assured that it's HMRC approved and everyone does it. As a contractor your "normal" place of work is your home and your commuting to a client site is counted as business travel. You can also claim for subsistence under some circumstances. This is true even if you work at a client site 99% of the time. The only gotcha is if you spend 2 years on one site then you have to stop claiming. Search for the "2 year rule" or "24 month rule" here and you will find a lot of discussion of this.


4) I will probably be travelling 60 miles to work (and back I guess!)... If inside IR35, you can only claim 5% on your rate... If earning for example, 350 per day + meals, expenses would not cover this... is this something you just have to deal with?

You can still claim for expenses if you are IR35 caught.


5) When securing a new contract, would employers be put-off by potential expenses you may claim?

Absolutely! Would you be put off if you hired a plumber and he wanted you to fill his van up with gas before he could drive over to your place or a housekeeper who wanted you to pay her bus fare? :laugh

Generally, you don't claim for expenses from your client (don't use the dreaded word "employer" here). You make sure your rate covers your costs of doing business and your LTD company pays for your travel expenses out of it's profits. If you can run your business more efficiently then you will make more profit.

An exception to this would be out of the ordinary travel. For example, if the client told you he wanted you to go to Geneva tomorrow morning then I'd expect them to stump up for the flight, and accommodation/meals if it was more than a day trip.

BPMGuru
9th November 2011, 15:38
What is your area of expertise? That is, if 4 years experience can be called expertise.

MarillionFan
9th November 2011, 22:53
What is your area of expertise? That is, if 4 years experience can be called expertise.

4 years is long enough for a BPM guru.

MooseMunch
10th November 2011, 11:47
Thank you for the responses! They have helped a lot... the research has been a steep learning curve, but I now have good idea on where to go from here...



Only 4 years? 4 years since Uni, 4 years since you left school? That doesn't sound a lot. Could you tell us more.

Four years commercial experience since leaving university. If you count my industrial placement, that would be 5 years. Including uni, then it would be 8 years... and I did have a good grasp on programming before uni... so take from that what you wish... usually 'commercial experience' is implied when I talk to agencies, so im going on that.





You can still use an Umbrella. Returns are not as good as a Limited but I would always recommend someone new to try this first. Jumping in to contracting AND getting your head round the finances + LTD company can be mind blowing. Do 3 -6 months with Umbrella, get the hang of it then drop them when you feel more confident. You could of course go straight for LTD but you will have a lot of ground to cover fast.

I was thinking of going the umbrella route just to get a good grasp of the contracting lifestyle... granted an LTD would be possible, but I would rather focus on getting everything right with regards to my first contract. Client relationship, timesheets, payments, expenses etc... I just need to do some research on brollies to find out if any bail-out penalties apply if I change my mind



Again, take your permie head off...

(don't use the dreaded word "employer" here)

consider my hand slapped! I tend to use [dreaded word here] when referring to a client, as a matter of habit I guess...




IR35 is meant to stop you avoiding NI by taking money out as dividends instead of salary. This isn't possible with an umbrella company (as you are an employee of the brolly), but you can offset legitimate business expenses (train fares, mileage etc.) against your tax bill. Despite what they say, you'll get the same amount of money from every umbrella co (leaving their fees out of the equation).

Keep reading this forum and best of luck with the interview.


Thanks! and thats good to know... ive read a lot of claims about 70-85% and off-shore options, but it sounds too good to be true. In my experience, it usually is... ContractorUmbrella looks like a good place to start, I just need to take some time to look into contract termination and any other potential charges/pitfalls that may occur when using a brolly.



Absolutely! Join the PCG and they can give you a contract template that you can use. It covers a lot of stuff that you wouldn't think of straight away and it's been reviewed to be bullet proof from an IR35 point of view. However, your working practices must reflect the terms of the contract - it's no use IR35 wise if you are really just a disguised permie.

I've had a look at their site, some of the packages they offer seem like running a LTD is easy; with inclusive insurance and accountancy... Is this something you have considered? It looks like a good place to start with that and ive read a lot of good reviews.



If you go umbrella then you can forget all your IR35 worries. It's completely irrelevant because you are operating within the IR35 rules and paying PAYE, plus employee's NI, plus employer's NI. There are lots of Umbrella vs LTD calculators about, some of them (on umbrella sites) are a bit dodgy. Have a look at this calculator (https://www.nixonwilliams.com/net_pay_calculator.asp)

I did notice that actually, I was getting some different answers from brolly websites... ive noticed nixonwilliams has quite a lot of good guides and have read a lot of good info there. Thank you for clearing this point up though.




You can still claim for expenses if you are IR35 caught.

Is there a limit? I heard that when running your own LTD, you have better options with regards to expenses... The comparison chart I was looking at referred to the amount, and somewhere else I read that you can only claim upto 5%.. still a bit hazy on this one... and weater the amount/process differs between different brolly options.



What is your area of expertise? That is, if 4 years experience can be called expertise.

4 years is long enough for a BPM guru.

haha!

Well ASP.NET MVC was first released in late 2007 (CTP)... so this would make only the developers of the framework experts? granted you would require knowledge of a supported language too.

Same could apply for: F#, JQuery, Entity Framework, Linq etc etc...

From a development perspective, if you have a good grasp on programming paradigms (I.e. O-O), algorithms, design patterns, a broad knowledge of the framework before picking up a new language, then I personally don't see why its a big deal.

northernladuk
10th November 2011, 12:26
Sounds like you have done your homework there so I would get applying and get ready to jump in then. Also sounds like you could cope with an LTD as well. It's not that hard. Some guys here say go LTD straight away, in with both feet etc, some of use throw a bit of caution in the OP is a numpty but don't see that here.

Just be very(!!!) clear and careful about employer and client. It is no small matter and not one that can be brushed aside with 'matter of habit'. Ignorance is not a defense to the HMRC. Same goes for the difference between your money and your companies money when you start the LTD. THey couldn't be more distinct but people forget that because they have control over both.

4 years industry experience is great. Placement and Uni time is not applicable imo and best avoided. Having a grasp and delivering industry business critical codings are a world apart again.

Get applying, get ready with the LTD and fill your boots. Nov/Dec is notoriously quiet so don't let that put you off at the moment.

Oh yeah, check SJD accountancy out as well. They have some great guides and I love their spreadsheet, you can track your finances to the penny on it. Not seen NW to be fair.

Wanderer
10th November 2011, 21:52
I was thinking of going the umbrella route just to get a good grasp of the contracting lifestyle... granted an LTD would be possible, but I would rather focus on getting everything right with regards to my first contract. Client relationship, timesheets, payments, expenses etc... I just need to do some research on brollies to find out if any bail-out penalties apply if I change my mind. ive read a lot of claims about 70-85% and off-shore options, but it sounds too good to be true

Correct. Make sure you can give notice from the brolly, they take a fixed fee (NOT a % of your income) and that they are based in the UK paying PAYE rather than anything that has any of the following: off shore, scheme, Isle of Man, Self Employed, Employee Benefit Trust (EBT), loans, foreign currency or any convoluted payment terms. If it's confusing you then walk away.

80% take home is achievable perfectly legally with a LTD outside IR35 and on the VAT FRS - NW's calculator will show you that.

The only thing to choose between umbrellas is (in some sort of order) how fast they pay you, the fee they take, how easy they are to use and how good their customer service is.


I've had a look at their site, some of the packages they offer seem like running a LTD is easy; with inclusive insurance and accountancy... Is this something you have considered? It looks like a good place to start with that and ive read a lot of good reviews.

PCG are good, have a look at what their packages offer - even if you don't join them then at least you know what things you are going to need (eg, insurance etc). Have a hunt around the forum, advertising isn't allowed but there are a few accountants who post helpful stuff here and I'm sure they would be more than willing to take you on. :wink There are a few of the usual suspects listed here (http://forums.contractoruk.com/accounting-legal/69742-accountant-recommendation-threads-inc-local-requests.html).


I did notice that actually, I was getting some different answers from brolly websites...

Oh yeah, the brollies try to sweeten it up to look like you will take home a lot more than what you actually will. Trust the calculators on contractor-uk (http://www.contractoruk.com/calculators/) or one of the popular accountants rather than the brolly ones. I like NW's one because it's the easiest to use.


Is there a limit? I heard that when running your own LTD, you have better options with regards to expenses... The comparison chart I was looking at referred to the amount, and somewhere else I read that you can only claim upto 5%.. still a bit hazy on this one... and weater the amount/process differs between different brolly options.

If you are LTD and IR35 caught then you can, no questions asked. Any actual expenses can be claimed in addition to this but you have to justify them and keep receipts/records, understand the 2 year/24 month rule etc. Maybe they are hoping that people will just take the 5% and not bother claiming anything else - nice and simple for HMRC, they don't want to trawl through piles of crappy little expenses and argue the toss over them.