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View Full Version : Should I trade as a Limited Company, umbrella or composite



simondolan
10th May 2006, 11:10
Hi everyone,

Can't help but notice that there are many posts on here that ask the same question - should I use an umbrella or my own Ltd Company. Thought it might be useful to summarise once and for all the pros and cons of each method and how much you would be likely to take home. Might save some of you long suffering regulars a bit of time!

Operating your own Limited Company

Running your own Company means that you are running your own business. You will be a Company Director, operate the Company bank account, and be responsible for the affairs of the Company.

Benefits

The most tax efficient way of working meaning you get to keep more of your income;
You keep complete control of your financial affairs meaning you do not have to risk your money with any third party administrator;
You are running your own business so you can undertake other work outside your normal contract role;
Legitimately claim a wider range of expenses (training, equipment, software, etc);

Downsides

There is a certain amount of paperwork involved;
There are various deadlines which if missed could incur penalties (any good accountant will of course make sure you don’t miss these)


Umbrella

An Umbrella service is where you are essentially a PAYE employee of the Umbrella. The way it works is that your client or agent enters a contract with the Umbrella for your services, and you enter into a contract with the Umbrella.

Benefits

Very easy to use, all tax and NI deducted before you get paid;
Send in timesheets/expense details and wait to be paid.

Downsides

The most expensive way of working in terms of Tax and NI;
You are reliant on the Umbrella Company to collect your money from the client or agent and then to pay it on to you.


How much will I take home?

Outside IR35

If you fall outside IR35 the comparative income to you on the three choices, would be as follows, taken over a three year period:

Contract value Own Ltd Co Umbrella Composite
£50,000 pa £107,609.74 £89,595.48 £100,590.86
£75,000 pa £148,510.44 £124,251.50 £138,490.02
£100,000 pa £189,410.75 £158,898.50 £171,764.77

I have not taken into account expenses in calculating these figures as whichever system you use, the allowable expenses will be identical. Do NOT believe the marketing hype regarding “special dispensations” you may have come across. For an expense to be allowable you must have actually spent the amount in question.

Inside IR35

If you fall inside IR35 then the tax payable via an umbrella or composite Company will be around the same. There will be a saving of around 5% if you operate through your own Limited Company.

Hope this helps, and feel free to add anything else you think useful.

Lucifer Box
10th May 2006, 11:15
Thanks, Simon, post of the year.

Scotspine, please, please, please put this on a sticky.

Bradley
10th May 2006, 12:13
Composite

A Composite Company is one where a number of contractors use the same Company to invoice through. The system works in much the same way as an Umbrella, but the tax payable is less (assuming you are not caught by IR35)Simon - I thought composites wouldn't touch you if there was a possibility that you would be caught by IR35? The reason being that this made the holding of the shares pointless as well as mucking up the amount that could be distributed to the other "shareholders".

I also understood that there was already legislation passed in 2003 that took away the tax benefits of issuing "alphabet" shares?

simondolan
10th May 2006, 12:40
Quite correct Bradley - inside IR35 and the composites won't (or shouldn't!) touch you.

I'm not aware of any legislation that prevents the issuing of and the benefits derived from multiple share classes - certainly any composite Company trading today uses that method to administer things.

malvolio
10th May 2006, 13:24
Simon - thanks for this, always nice (and highly satisfying!) to be proved right by a professional. I knew there was a reason I used you!

nobody here but us chicke
10th May 2006, 15:29
would be that the figures quoted relate to income over three years. Is there a reason for that? I know it makes the difference more obvious, but....

simondolan
10th May 2006, 15:55
Sure - we've found out from experience that the average time for contracting is between 2 and 4 years, so 3 years was a nice middle ground. Also, the taper relief which can form an important part of the tax planning process doesn't kick in until after 2 years.

nobody here but us chicke
10th May 2006, 17:15
thanks Simon.

partimer
11th May 2006, 08:05
Couldn't agree more that this should be a sticky thread at the top. Most of what we regulars always say to the newbies and finally it's from a genuine accountant. No more excuses folks !

My only comment is that you'll find people asking "how close can I sail to the wind" and expect serious anwsers ... and the odd person who always reply "the IR are crap, you can take the p1ss no problem".

expat
11th May 2006, 10:30
Couldn't agree more that this should be a sticky thread at the top.I'd go farther and say that this should be a sticky thread at the top, and newbies should read it before asking those same questions less cogently.

Bradley
11th May 2006, 11:10
I'm not aware of any legislation that prevents the issuing of and the benefits derived from multiple share classes - certainly any composite Company trading today uses that method to administer things.
It's the legislation that meant the introduction of the Form 42. The Revenue's argument is that the composite company is using shares to remunerate workers who would otherwise be paying PAYE. Hence the interest in composites. The Revenue see composites as a very easy target.

IMO the next logical step in this particular argument is for the Revenue to increase (if that's possible!) attempts to re-classify contractors as employees. Thier difficulty is how to re-draw the legislation without affecting "legitimate" business i.e. all the plumbers, electricians etc that incorporated because of the CT nil rate band.

Fight the power!

css_jay99
11th May 2006, 13:15
Contract value Own Ltd Co Umbrella Composite
£50,000 pa £107,609.74 £89,595.48 £100,590.86
£75,000 pa £148,510.44 £124,251.50 £138,490.02
£100,000 pa £189,410.75 £158,898.50 £171,764.77



I dont want to appear too thick, but i dont understand your figures !

each row represents each year right ?,
If contract value (Turnover I take it) is £50k, then how does that translate into £107,609 for Ltd or what exactly is the figure for ? :confused:

can you please give a brief explanation

cheers

The Master
11th May 2006, 13:20
I dont want to appear too thick, but i dont understand your figures !

each row represents each year right ?,
If contract value (Turnover I take it) is £50k, then how does that translate into £107,609 for Ltd or what exactly is the figure for ? :confused:

can you please give a brief explanation

cheers
As already stated, that's over 3 years.

DaveB
11th May 2006, 13:24
I dont want to appear too thick, but i dont understand your figures !

each row represents each year right ?,
If contract value (Turnover I take it) is £50k, then how does that translate into £107,609 for Ltd or what exactly is the figure for ? :confused:

can you please give a brief explanation

cheers


The figures are totals over 3 years.

So if your turnover is £50k pa after three years you would end up with (roughly):

£107k running your own ltd,
£90k with an Umbrella and
£100k with a composite.

Thats from a total turnover of £150k over 3 years.

Interestingly though the Own Ltd gives a return of ~%71 but SJD's advert on this site claims %83 is possible. Any ideas on the discrepancy Simon? You said in the original post that expenses were taken into account in the calculations already.

Edit - D'oh, you said the expenses wern't taken into account. Anyway, still interested as to where the other 12% comes from.

Bradley
11th May 2006, 14:21
How much will I take home?

Outside IR35

If you fall outside IR35 the comparative income to you on the three choices, would be as follows, taken over a three year period:

Contract value Own Ltd Co Umbrella Composite
£50,000 pa £107,609.74 £89,595.48 £100,590.86
£75,000 pa £148,510.44 £124,251.50 £138,490.02
£100,000 pa £189,410.75 £158,898.50 £171,764.77

I have not taken into account expenses in calculating these figures as whichever system you use, the allowable expenses will be identical. Do NOT believe the marketing hype regarding “special dispensations” you may have come across. For an expense to be allowable you must have actually spent the amount in question.

Inside IR35

If you fall inside IR35 then the tax payable via an umbrella or composite Company will be around the same. There will be a saving of around 5% if you operate through your own Limited Company.

Hope this helps, and feel free to add anything else you think useful.
Simon - did you assume a minimum wage? Did you assume that all profits would be paid as dividends? Is it for one shareholder only?

simondolan
12th May 2006, 09:08
Few unanswered queries in the thread, so here goes:

1. Bradley - yes, assumed wage of £4800 and dividends to the sole shareholder. Obviously if the S660 result comes out on our side you could split the shares with a non working spouse and get an even better return, but at the time of writing this is so uncertain that I didn't want to build this into the projections;

2. DaveB - in those take home figures I assumed expenses at 15% of the contract value, so on the example of £50,000 a year you have expenses of £7500 pa. Multiply this over the three years gives you £22500, added to the £107,000 gives £129500 which is actually around 86% of the contract value;

3. Bradley - Form 42. See what you mean. It could well be that the Revenue are sitting on these and formulating a strategy for taking down the composites, but I think it fair to say that they have a very limited shelf life the way things are going.

philip@wellwoodhoyle
12th May 2006, 19:38
Bradley - Form 42. See what you mean. It could well be that the Revenue are sitting on these and formulating a strategy for taking down the composites, but I think it fair to say that they have a very limited shelf life the way things are going.

I went on a course just last week when this very point was covered, but the speaker warned everyone that this new legislation may not be limited just to composites, but also to S660 and IR35 cases, which really made people sit up and listen. He thought that the HMRC may have put the legislation in place "just in case" they lost the S660 case, the logic being that if they won, they could go back the six years for S660, but if they lost they can at least go back to 2004 and activate the legislation as a "catch all" for anyone paying dividends instead of wages. His opinion does tend to make sense as the HMRC are losing most of the IR35 cases and with S660 as well, one has to wonder why they havn't brought in new legislation to prevent the low salary/high dividend scenario - perhaps they have brought in the legislation and are just sitting on it!

funkyd
15th May 2006, 08:44
assumed wage of £4800

Isn't this asking to be picked up by the IR? Wouldn't a more sensible salary be minimum wage? At least it can't be argued that it isn't enough to live on and obviously a way to dodge taxes?

I pay myself a £20k salary and the rest in a dividend spread though the year. Sure you can get more but why take the risk? :confused:

philip@wellwoodhoyle
15th May 2006, 10:29
Isn't this asking to be picked up by the IR? Wouldn't a more sensible salary be minimum wage? At least it can't be argued that it isn't enough to live on and obviously a way to dodge taxes?

I pay myself a £20k salary and the rest in a dividend spread though the year. Sure you can get more but why take the risk? :confused:

This is a well rehearsed argument between contractors (& their accountants) and HMRC.

The thing is that HMRC have no powers to argue whether a director's remuneration should be £4,800 or £20,000 - in fact they would argue that neither is high enough and they'd be looking for £50k plus.

There is no law which says what a director must earn - the minimum wage does not apply to directors unless they have a contract of employment.

They have specific "tools" for chasing contractors - they are IR35 and S660 and if you aren't caught by either, there isn't anything HMRC can do about a £4,800 salary - conversely if you are caught by one or the other, even a £20k salary is unlikely to satisfy them. I would imagine the same would apply to the Form 42 legislation - they'll be wanting "all or nothing".

Even if it is "an obvious way to dodge taxes", there is nothing the HMRC can do about it unless it falls under IR35, S660 or the Form 42 thingie!

simondolan
15th May 2006, 10:49
Also, from experience, I can say that not once in the last 15 years have the Revenue ever even raised a question about a low salary.

Further, again from experience, there is no correlation between a low salary and the likelihood of an investigation.

Bradley
16th May 2006, 15:07
Few unanswered queries in the thread, so here goes:

1. Bradley - yes, assumed wage of £4800 and dividends to the sole shareholder. Obviously if the S660 result comes out on our side you could split the shares with a non working spouse and get an even better return, but at the time of writing this is so uncertain that I didn't want to build this into the projections;

2. DaveB - in those take home figures I assumed expenses at 15% of the contract value, so on the example of £50,000 a year you have expenses of £7500 pa. Multiply this over the three years gives you £22500, added to the £107,000 gives £129500 which is actually around 86% of the contract value;

3. Bradley - Form 42. See what you mean. It could well be that the Revenue are sitting on these and formulating a strategy for taking down the composites, but I think it fair to say that they have a very limited shelf life the way things are going.
Simon - I can't duplicate your figures at all. Is there a link to the workings on the SJD site?

funkyd
17th May 2006, 08:45
Also, from experience, I can say that not once in the last 15 years have the Revenue ever even raised a question about a low salary.

Further, again from experience, there is no correlation between a low salary and the likelihood of an investigation.

Are you not missing the point that a low salary equates to low NI contributions which is something that the Revenue would be interested in? Insufficient NI contributions can cause all sorts of problems and imo consider the extra payment insignificant relative to my income.

simondolan
17th May 2006, 08:46
Bradley - I wouldn't want to give away our secrets would I!!

Would of course be happy to discuss with you once you become a client :D

In all seriousness it is a fairly simple piece of tax planning which all decent accountants should know about - really nothing complicated and something which is given prior approval by the Revenue.

simondolan
17th May 2006, 08:53
Are you not missing the point that a low salary equates to low NI contributions which is something that the Revenue would be interested in? Insufficient NI contributions can cause all sorts of problems and imo consider the extra payment insignificant relative to my income.

Of course, it is something the Revenue are interested in - we wouldn't have IR35 if they weren't, but the fact is that (aside of IR35) there is nothing they can do about it at present.

The only problem insufficient NI contributions can pose is a reduced State Pension. Maybe a consideration for some, but for your average 30 year old not something they are likely to be too bothered about.

ASB
19th May 2006, 17:07
Of course, it is something the Revenue are interested in - we wouldn't have IR35 if they weren't, but the fact is that (aside of IR35) there is nothing they can do about it at present.

The only problem insufficient NI contributions can pose is a reduced State Pension. Maybe a consideration for some, but for your average 30 year old not something they are likely to be too bothered about.

Simon,

I thought it was the case that if you paid youself between the lower earning limit and the primary threhold the the NI payable was nil but you still got a years pension credit. If this is correct (and I'm not sure) then one will still get the full basic state pension.

If I am incorrect this could be a good time for me to get a forecast and pay some class 3 contributions :mad:

NewBoy
24th May 2006, 17:22
Hi Simon

I have been playing with the numbers based on £75k per annum and I'm obviously some way off with my numbers...am I missing something very obvious? Workings as follows for one year only:

Earnings: £75k

Salary: £4.8k

Profit: £70.2k (£75k - £4.8k)

19% Small Business Tax: £13.3k

Gross Dividend: £56.9k (Profit minus small business tax)

Taxable Dividend: £23.6k (Gross Dividend minus lower tax threshold of £38.1k)

22.5% Dividend Tax: £5.3k

Net Dividend: £51.6k (Gross Dividend minus Dividend Tax)

Net Earnings: £56.5k per annum (Net Dividend plus + Salary)


Where have I gone wrong? The only thing I can think of is that I've done the Dividend wrong, my understanding is as follows:

First £4,800 (i.e. Salary) is a completely tax free. The next £33,300 if paid as a dividend is subject to 10% tax liability but then the 10% tax credit balances that out, so again, tax free in reality. Anything above that amount (i.e. £38.1k) is subject to a 32.5% tax liability but the 10% tax credit reduces that down to 22.5%...Have I got this right?

Can't wait for the 100 posts that are about to blast the Newboy for missing something an 8 year old would spot!!

simondolan
25th May 2006, 09:51
Hi,

Yes, you are missing something fundamental, but not something you would know about so don't feel too bad about it! (Although of course your accountant should know about it...)

Drop me a mail and I'll go through it with you.

ASB
25th May 2006, 11:05
Can't wait for the 100 posts that are about to blast the Newboy for missing something an 8 year old would spot!!

NewBoy,

I have no idea at all what Simons method will be (better than mine I imagine) but consider tihs:-

After 3 years you get taper relief of 75% on the value of shares sold. If there are two of you then given the approx 9k CGT allowance this means the company can have retained earnings of about 70k before any CGT becomes payable.

So if you rework your calculation retaining about 23k PA you might get a better result. But I can't be bothered to do it.

The problem with this might be that the IR could be unhappy about you setting up a CO and the winding it up every 3 years with ESC C16. [The concession that lets you take distributions as capital not income. I imagine they could not complain if you went through formal liquidation and that wouldn't be too expensive though]

Bradley
25th May 2006, 17:29
NewBoy,

I have no idea at all what Simons method will be (better than mine I imagine) but consider tihs:-

After 3 years you get taper relief of 75% on the value of shares sold. If there are two of you then given the approx 9k CGT allowance this means the company can have retained earnings of about 70k before any CGT becomes payable.

So if you rework your calculation retaining about 23k PA you might get a better result. But I can't be bothered to do it.

The problem with this might be that the IR could be unhappy about you setting up a CO and the winding it up every 3 years with ESC C16. [The concession that lets you take distributions as capital not income. I imagine they could not complain if you went through formal liquidation and that wouldn't be too expensive though]
I certainly wouldn't rely on GB leaving taper relief or the concessionary treatment as is in the current climate. You could end up leaving money in the company on which you end up paying far more in tax in the future.

Take the money out as you earn it!

simondolan
25th May 2006, 19:12
I certainly wouldn't rely on GB leaving taper relief or the concessionary treatment as is in the current climate. You could end up leaving money in the company on which you end up paying far more in tax in the future.

Take the money out as you earn it!

That is terrible advice. I agree the concession may not last for ever, but that is no reason to take the cash out as you go. If nothing else, by leaving cash in the Company you defer the potantial higher rate tax payable on the dividends.

philip@wellwoodhoyle
26th May 2006, 08:53
I certainly wouldn't rely on GB leaving taper relief or the concessionary treatment as is in the current climate. You could end up leaving money in the company on which you end up paying far more in tax in the future.

Take the money out as you earn it!

Sorry, can't agree. The relief/concession are there to be used and should be used whilst they exist.

But, I can agree to the extent that such reliefs/concessions shouldn't be relied on to the detriment of other options - for example taking as much money out each year as possible without higher rate tax kicking in. It really would be folly for someone who has not used up all his/her (and spouse's) basic rate band to leave money in the company in the hope of taper relief in the future.

Bradley
26th May 2006, 13:06
That is terrible advice. I agree the concession may not last for ever, but that is no reason to take the cash out as you go. If nothing else, by leaving cash in the Company you defer the potantial higher rate tax payable on the dividends.
I depends on how you take the cash out of course. You don't have to take dividends e.g. pensions/loans.

I also note that you make no comment about taper relief. Are you so sure that it's going to last in it's current form for at least the next two years? I suspect not.

As for building up funds in the company, the last time Gordon decided to change the rules he brought in the NCD rate and effectively penalised those who had built up reserves before the rule change. What's to say he won't do something similar in the future like putting NIC on dividends? The government review into small business is still ongoing isn't it?

simondolan
26th May 2006, 13:30
I depends on how you take the cash out of course. You don't have to take dividends e.g. pensions/loans.

Pensions are an idea of course, provided you don't mind tying your cash up for the next several years. Loans are a non starter because of S419. Any loan not repaid with 9 months of the Company year end get hit with a 25% tax charge.


I also note that you make no comment about taper relief. Are you so sure that it's going to last in it's current form for at least the next two years? I suspect not.

I doubt very much that taper relief is likely to be fiddled with to any great extent. Capital Gains Tax collects (relatively speaking anyway) an extremely small amount of tax so any adjustments to taper relief would have almost zero effect on the overall tax take.



As for building up funds in the company, the last time Gordon decided to change the rules he brought in the NCD rate and effectively penalised those who had built up reserves before the rule change.?

No, the NCD hit profits made in the year, not accumulated reserves.


What's to say he won't do something similar in the future like putting NIC on dividends? The government review into small business is still ongoing isn't it?

NIC's are a slight possibility I suppose - all the more reason not to distribute the funds as a dividend surely??

Tax planning can only be undertaken based on rules that exist at the current time. It would be foolish to plan on what might be. You cannot second guess what the Govt will do.

Bradley
26th May 2006, 14:38
Pensions are an idea of course, provided you don't mind tying your cash up for the next several years. Loans are a non starter because of S419. Any loan not repaid with 9 months of the Company year end get hit with a 25% tax charge.
It's still a cash flow advantage and you could of course repay the loan with a dividend and start again after a decent interval. Pensions - 25% tax-free plus income draw-down and no need to retire.


I doubt very much that taper relief is likely to be fiddled with to any great extent. Capital Gains Tax collects (relatively speaking anyway) an extremely small amount of tax so any adjustments to taper relief would have almost zero effect on the overall tax take.
It's a small amount of tax because of the availability of taper relief! If you look at the Budget statements you'll see how much the government reckon that taper relief costs it - it is not insignificant. I think the chances are exceedingly high that it will be fiddled with.


No, the NCD hit profits made in the year, not accumulated reserves.
I think you are forgetting about the surplus dividends that had to be carried forward thereby setting off the NCD rate until exhausted.


NIC's are a slight possibility I suppose - all the more reason not to distribute the funds as a dividend surely??
I said that they may add NIC to dividends from small companies. Dividends would then be a bad idea presumably.


Tax planning can only be undertaken based on rules that exist at the current time. It would be foolish to plan on what might be. You cannot second guess what the Govt will do.The point of what I was saying about taper is that Gordon could change the rules now and say that no-one is affected. Whenever the rates have changed in the past there's been no transitional help. The taper relief applies to actual disposals not with what may happen.

Someone could have started trading two years ago and have taper available at 75%. Gordon Brown stands up next March and says - we withdraw relief for all disposals after Budget day. What's going to happen then? It'd be too late to apply for the ESC C16 concessionary treatment so that you could treat the disposal as capital so you'd be fecked.

It may be that GB says that surplus cash in company equals non-trading for taper purposes. Fecked again!

simondolan
30th May 2006, 08:22
It's still a cash flow advantage and you could of course repay the loan with a dividend and start again after a decent interval. Pensions - 25% tax-free plus income draw-down and no need to retire.

Yes, you could delay the higher rate tax by a year by repaying the loan via way of dividend. Yes, 25% tax free at age 50.




It's a small amount of tax because of the availability of taper relief! If you look at the Budget statements you'll see how much the government reckon that taper relief costs it - it is not insignificant. I think the chances are exceedingly high that it will be fiddled with.

No, it is and always has been a relatively small amount of tax. That is why the have been so generous with taper relief. It is a nice headline and on the face of it shows Labour to be rewarding investment in business, but costs them very little.


I think you are forgetting about the surplus dividends that had to be carried forward thereby setting off the NCD rate until exhausted.

No, surplus dividends kick in from the date the NCD rate came in - they do not hit accumulated reserves which was your original point.


I said that they may add NIC to dividends from small companies. Dividends would then be a bad idea presumably.

Of course - all the more reason to accumulate funds rather than drawing dividends if they do.


The point of what I was saying about taper is that Gordon could change the rules now and say that no-one is affected. Whenever the rates have changed in the past there's been no transitional help. The taper relief applies to actual disposals not with what may happen.

Someone could have started trading two years ago and have taper available at 75%. Gordon Brown stands up next March and says - we withdraw relief for all disposals after Budget day. What's going to happen then? It'd be too late to apply for the ESC C16 concessionary treatment so that you could treat the disposal as capital so you'd be fecked...

Yes, he could of course change the rules - if he does you take the accumulated reserves as dividends then - the point being that you would be no worse off than if you had paid them out as you went along.

Turn the arguement around he might also change the rules to abolish CGT (it costs more to collect than it raises) - in that case you would be ever better off!!

My point is that any tax planning needs to take advantage of the rules that exist at that time. You can of course build contingencies in to your planning, but what you don't do is to ignore what is available just in case it changes.

Bradley
30th May 2006, 10:25
No, it is and always has been a relatively small amount of tax. That is why the have been so generous with taper relief. It is a nice headline and on the face of it shows Labour to be rewarding investment in business, but costs them very little.
According to the last Treasury Budget report, taper relief cost Gordon £4.5 Billion in 2005-06. I don't call that very little. The small companies rate costs about £700 million less has been the subject of very close scrutiny by GB.


No, surplus dividends kick in from the date the NCD rate came in - they do not hit accumulated reserves which was your original point.
Company A had brought forward reserves of £50k and current year profits of £20k as at 31/12/2004. It declares a dividend of £50k and pays £3,800 CT on current year profits. In the year to 31/12/2005 it earns profits of £20k but pays no dividends. It expects CT payable of £2375 but pays £3800 because of the surplus dividend payment brought forward. You have been penalised for building up reserves in prior periods.


Of course - all the more reason to accumulate funds rather than drawing dividends if they do.
If you accumulate funds how are you going to get them out? By dividend of course so therefore NIC becomes payable at the point of payment.


Yes, he could of course change the rules - if he does you take the accumulated reserves as dividends then - the point being that you would be no worse off than if you had paid them out as you went along.
Not if you take them as one lump sum. What if the income tax rate on dividends goes up? What if there is NIC on dividends at that point?


Turn the arguement around he might also change the rules to abolish CGT (it costs more to collect than it raises) - in that case you would be ever better off!!Pull the other one! Do you seriously think that this government is going to reduce taxes and complexity at the same time?


My point is that any tax planning needs to take advantage of the rules that exist at that time. You can of course build contingencies in to your planning, but what you don't do is to ignore what is available just in case it changes.
If you build up reserves you are gambling that taper relief will be around in two years time. You're not really taking advantage of rules but relying on a relief.

simondolan
30th May 2006, 12:02
According to the last Treasury Budget report, taper relief cost Gordon £4.5 Billion in 2005-06. I don't call that very little. The small companies rate costs about £700 million less has been the subject of very close scrutiny by GB.

You are mistaken. The total CGT take for 2004/05 was £2.2bn. The projections for 2005/06 are actually higher. To put this amount in perspective, the total tax take in 2004/05 was £293bn.

As I said - insignificant.

http://www.hmrc.gov.uk/stats/tax_receipts/menu.htm


Company A had brought forward reserves of £50k and current year profits of £20k as at 31/12/2004. It declares a dividend of £50k and pays £3,800 CT on current year profits. In the year to 31/12/2005 it earns profits of £20k but pays no dividends. It expects CT payable of £2375 but pays £3800 because of the surplus dividend payment brought forward. You have been penalised for building up reserves in prior periods.

Yes - you are being penalised for paying dividends NOT for accumulated reserves.


If you accumulate funds how are you going to get them out? By dividend of course so therefore NIC becomes payable at the point of payment.

Under current legislation when you close the Company you pay the accumuated funds as a capital distribution, not a dividend. Also of course no NIC is payable on dividends.



Not if you take them as one lump sum. What if the income tax rate on dividends goes up? What if there is NIC on dividends at that point?.

What if, what if, what if - you cannot base tax planning on what if's. Even so, any rate changes cannot take effect retrospectively - any announcement would therefore give ample notice to take the funds out before the rate changes.


If you build up reserves you are gambling that taper relief will be around in two years time. You're not really taking advantage of rules but relying on a relief.

No, you are using the current tax rules (or reliefs if you prefer) to put in place a sensible piece of tax planning.

Bradley
30th May 2006, 13:35
You are mistaken. The total CGT take for 2004/05 was £2.2bn. The projections for 2005/06 are actually higher. To put this amount in perspective, the total tax take in 2004/05 was £293bn.

As I said - insignificant.
Simon - go to http://www.hm-treasury.gov.uk/media/20F/2F/bud06_cha_134.pdf - and look at page 29 of 30. On that page you will see that it is estimated that taper relief will cost Gordon Brown £4.5 Billion in 2005-6. In other words the CGT take would have been tripled if taper relief hadn't existed.


Yes - you are being penalised for paying dividends NOT for accumulated reserves.
Yes but you couldn't have paid them if you hadn't accumulated in the first place. Those that paid dividends as they went along didn't encounter this problem.


Under current legislation when you close the Company you pay the accumuated funds as a capital distribution, not a dividend. Also of course no NIC is payable on dividends.
You are only able to pay the cumulative reserves, excluding share capital, as a capital amount if the Revenue agree under Extra Stat Concession C16 to that treatment; otherwise it's a dividend. There's always a possibility of course that GB instructs the Revenue to deny ESC C16 to small companies with large cash balances on their balance sheet.


What if, what if, what if - you cannot base tax planning on what if's. Even so, any rate changes cannot take effect retrospectively - any announcement would therefore give ample notice to take the funds out before the rate changes.
In one lump sum taxable at the higher rate! Result - you may as well have taken the cash out as you went along. Using the taper relief as a planning tool is a gamble Simon, especially in the current climate. As long as people know that then that's their choice.


No, you are using the current tax rules (or reliefs if you prefer) to put in place a sensible piece of tax planning.
But the point is that you're gambling that taper relief will be available at the point you decide to stop trading and wind up the company. As I've stated above taper could be changed overnight and the change doesn't need to be retrospective to bite.

You could, of course, wind-up every two years to make sure you get full rate of taper and then incorporate again but that's avoidance. Part of getting the ESC C16 clearance is to state that you are ceasing trading.

simondolan
30th May 2006, 14:20
It is becoming difficult to read this thread now, so perhaps a summary on this point would help:

1. The most tax efficient way of trading is using your own Ltd Company;

2. Currently, the most tax efficient way of distributing the income is to pay dividends/small salary to take you just under the Higher Rate threshold, and accumulate the balance within the Company

3. Once the Company ceases trading (note the Company, not the individual), you can, as things stand, claim to have the accumulated reserves treated as a capital distribution and therefore take advantage of taper relief.

4. The Govt might change the rules in the future which might mean this advice needs to change.

5. If they do change the rules, and you have to pay out the remaining income as dividend you will be no worse off than if you had paid the dividends out as you went along.

malvolio
30th May 2006, 14:25
The only problem being if your monthly net income has to be something over £37k a year. In which case, I assume you take just enough dividends out to cover the shortfall and accept the higher-rate tax bill?

simondolan
30th May 2006, 14:44
The only problem being if your monthly net income has to be something over £37k a year. In which case, I assume you take just enough dividends out to cover the shortfall and accept the higher-rate tax bill?

Yes - sometimes practical considerations have to take precedence over tax planning!

Bradley
30th May 2006, 15:02
3. Once the Company ceases trading (note the Company, not the individual), you can, as things stand, claim to have the accumulated reserves treated as a capital distribution and therefore take advantage of taper relief.
With the proviso that the individual cannot then incorporate a new company and start trading again.


5. If they do change the rules, and you have to pay out the remaining income as dividend you will be no worse off than if you had paid the dividends out as you went along.
You cannot say that with any certainty Simon. There is no guarantee. That was my point.

DaveB
30th May 2006, 15:35
With the proviso that the individual cannot then incorporate a new company and start trading again.


You cannot say that with any certainty Simon. There is no guarantee. That was my point.

And you can't say with any certainty that the rules will change. Or if they do that it will be detrimental. They might do, they might not.

As Simon said, you can only plan based on what you know is the situation at the time or what you have reasonable grounds to belive will be the situation in the forseable future.

This kind of paranoid double think will end up costing you in the long term and make you look like a complete twat in the short term.

NewBoy
30th May 2006, 16:12
This post has got well out of hand, although been very useful and mildly entertaining.

Simon is giving tax planning advice on what the current situation is today which is probably the safest bet and what you would expect a professional in the financial services indistry to advise.

However, what Bradley is saying is that it is worth trying to predict what might happen in the future if possible...which has some validity.

I would go with Simon in this instance, but that is just me, and even then this post has made me think about keeping one eye on the future which I wasn't doiung before...

So...surely both views are valid and it has been good to understand both sides...everyone just needs to decide which way they want to go.

Thank you both of you for giving the options.

ASB
31st May 2006, 08:45
What if, what if, what if - you cannot base tax planning on what if's. Even so, any rate changes cannot take effect retrospectively - any announcement would therefore give ample notice to take the funds out before the rate changes.

Whilst I beleive Simons approach is quite correct - can only really base on current rules - I am not really convinced by the assumption that any changes will be non retrospective.

The most recent changes to trusts are effectively retrospective.
The NCDR rate was retrospective in all but name. But irrelevant now anyway.
IR35 was retrospective in as much as "we'll apply it from April this year, and let you know what the rules are when we have decided".

There does seem to be a trend in closing doors and then announcing they have been been closed, thus there is a risk that one may be penalised under rules that don't yet exist.

NoelWatson
31st May 2006, 10:10
It is becoming difficult to read this thread now, so perhaps a summary on this point would help:

1. The most tax efficient way of trading is using your own Ltd Company;

2. Currently, the most tax efficient way of distributing the income is to pay dividends/small salary to take you just under the Higher Rate threshold, and accumulate the balance within the Company

3. Once the Company ceases trading (note the Company, not the individual), you can, as things stand, claim to have the accumulated reserves treated as a capital distribution and therefore take advantage of taper relief.

4. The Govt might change the rules in the future which might mean this advice needs to change.

5. If they do change the rules, and you have to pay out the remaining income as dividend you will be no worse off than if you had paid the dividends out as you went along.

Is there a recommendation yet for the best amount of pension to contribute (percentage or absolute - assuming that you are happy with pensions) and whether this should be paid from by the individual or the company?

simondolan
31st May 2006, 10:42
Is there a recommendation yet for the best amount of pension to contribute (percentage or absolute - assuming that you are happy with pensions) and whether this should be paid from by the individual or the company?

Most tax efficient to pay from the Company (make sure the pension scheme is set up to receive employer contributions).

As to how much is a personal choice based on what you think you will need to retire on, and what projections you choose to believe are reasonable.

Mustang
26th June 2006, 16:54
Great discussion - many thanks Simon for initiating it!!


:uofftopic I am just trying to work out how I can get access to more money so that I can afford to draw a small salary and pay myself a large dividends. My CO is running well but personal finances are such that I need to draw a fair size salary to cover my outgoings. :(

Any pointers from anyone else on how the managed to make that transition (other than having capital in the first place).

Ruprect
27th June 2006, 12:07
Any pointers from anyone else on how the managed to make that transition (other than having capital in the first place).

Sell the Mustang, buy a mini ;)

ASB
27th June 2006, 12:25
Great discussion - many thanks Simon for initiating it!!


:uofftopic I am just trying to work out how I can get access to more money so that I can afford to draw a small salary and pay myself a large dividends. My CO is running well but personal finances are such that I need to draw a fair size salary to cover my outgoings. :(

Any pointers from anyone else on how the managed to make that transition (other than having capital in the first place).

1) Reduce salary to 5k.
2) Draw salary.
3) Draw whatever else you need monthly {post to directors current a/c}
4) Vote dividend quarterly to cover the total of 3. {post to director current a/c}

At end of year ensure the directors account is not overdrawn.

Your salary doesn't need to cover your outgoings.

malvolio
3rd July 2006, 09:24
Mate, I've been contracting through a company called Highfordgroup, using a Limited company that they set up for me. Standard wage + dividends paid every month.

Thud....thud....thud....

Captain Jack
3rd July 2006, 10:03
What do you think??????? :)
Just wondered how long you've been working for Highfordgroup?

The Lone Gunman
3rd July 2006, 10:11
Guys, I've been using a company called Highfordgroup for about five months now. They explained to me that no two contractors are the same and that we all fall into one of the three solutions, based on our own personal circumstances, the options were an Umbrella PAYE, Composite & a personal Limited Company. In the end I went for the Limited company option. (The main issue I was told was IR35). I was lucky seing that I am working from home, I am working on two contracts, and I am not working through a recruitment company. Hence I am not see as being employed. I am truly sefl employed. My retention is 85%, this slightly fluctuates based on my expenses. I have not had a problem up to now with payments, I fax a timesheet and promptly get paid direct into my account, and I receive an emailed payslip. All this for £30 per week. And they didn't charge me any set up charges for the company. (Gret Deal) What do you think??????? :):spam: and £30 quid a week is too much!!!

Captain Jack
3rd July 2006, 10:54
Do you think so. They deal with all aspects of running my limited company for me, they process my timesheets and expenses, pay the required tax & NI, I don't have any paperwork at all at the moment. Apart from the self assessment form at the end of the tax year.
Yes, this is way, way too much. That's £1,560/year FFS!

malvolio
3rd July 2006, 11:01
Yes, this is way, way too much. That's £1,560/year FFS!

Yeah, I pay 2/3rds of that for a proper accountant (who also does all the other bits and the SA form) and most people around here think I'm paying over the odds.

They are not adding value to your bottom line, and are charging you for things that you don't need to be paying for. And you're a proper business??

And of course, IR35 is no part of the decision process - go umbrella if you are both terminally nervous and fully and genuinely caught by IR35 (both unlikely TBH) or your own Ltd otherwise. Or haven't you read this thread yet?

Captain Jack
3rd July 2006, 11:06
Mal, he works for the umbrella in question and has been spamming other threads with ads. Best to just ignore him now.

MarkOD
13th July 2006, 09:53
I've only just started contracting in IT however by looking at various websites and speaking to them also parasol, giant, norla, no longer limited, orange genie among various others, all i imagine offer similar solutions but when speaking to them they all blow their own trumpet which is fair enough. However what would be the best one??? Is this the route i should go down or is there better options
advice would be much appreciated

Pondlife
13th July 2006, 10:37
Have you read the whole thread?

MarkOD
13th July 2006, 11:39
yeah i know it was a bit off the topic, was just trying to get a bit of an idea

gregy38
18th July 2006, 10:25
The figures quoted regarding the 'take home' pay from the three methods ltd company, composite or umbrella :-

do the figures take account of the heavy 'extra' accountancy fees that are incurred in running your own limited company.

i.e paying fees when out of contract, heavy financial reference fees , high wind up charges etc. This would put a different complexion on the quoted figures

Dalek Supreme
18th July 2006, 10:40
:rollin:

"Heavy" fees? Which umbrella or composite do you work for then?

contraspirer
18th July 2006, 13:16
Hi All,

I have never contracted before and all my previous work ex has been in permanent roles.

But lately going through jobsites like Jobserve,etc i found that Contract roles pay way too much than permanent roles and deserved due attention!.

After googling a bit i came across this wonderful site and then eventually this wonderful post by SJD. The comparison chart for Own Ltd Co, Umberalla and Composite was very helpful.

But to take a final decision i needed a comparison with take home figures in Permanent roles. Googling more didnt help, so I just visited some gov.uk websites and checked up on the basic income tax calculations(the slabs et al) and NIC calculations(97 to 645 , 11% etc) . A basic calculation using 50000 p.a. as gross income gave me the following figures.

Gross Income £50,000 p.a.
Income tax £11,733 p.a.
NIC £3,134 p.a.
Net Income £35,133

Income for 3 years 35, 133 * 3 = £105,399 p.a.

If i compare this figure with the chart mentioned earlier. I dont see too much gain in contracting , in fact, with the Umbrella and Composite option it wouldnt make sense to contract at all!(if the decision to contract is based solely on financial gain of course)!.



How much will I take home?

Outside IR35

If you fall outside IR35 the comparative income to you on the three choices, would be as follows, taken over a three year period:

Contract value Own Ltd Co Umbrella Composite
£50,000 pa £107,609.74 £89,595.48 £100,590.86
£75,000 pa £148,510.44 £124,251.50 £138,490.02
£100,000 pa £189,410.75 £158,898.50 £171,764.77



Am i missing out on something here? Have my calculatioins gone awefully wrong ? Whatever the case, please enlighten me and help me make a informed choice.

Cheers!

malvolio
18th July 2006, 13:25
You only really missed a few minor details, such as no holiday pay, no SSP, no healthcare, no pension, no paid bank holidays, no pay when not working, typically working 8 months a year, having to pay employee and employers business taxes, having to carry insurance for PI, major illness, chronic illness and healthcare, no car allowances , the cost of some sort of accountancy support, no training and no certaintly that you aren't going to get smacked with a tax investigation. If the actual cost of a contractor was wildly different to the true total cost of employing a permie, we'd all be out of work.

So close, but no banana. Take an annual salary and divide it by 100, that is the equivalent hourly rate.

contraspirer
18th July 2006, 14:25
Apologies Malvolio. I am still confused.

What i understand from your reply is that contractors need to be duely compensated for all the trouble they go through, not to mention the lack of security and persistent uncertainty about the future.

Thats precisely the reason i was surprised when my Permie take home income calculation was almost equal to the Contract take home income figure in the chart.

Also the last sentence of your post is adding to my confusion. If i consider 50,000 as annual income and divide by 100 i get 500!. That surely cant be the hourly rate!.

Hope you will throw some light on this!.

The Lone Gunman
18th July 2006, 14:29
Hi All,

I have never contracted before and all my previous work ex has been in permanent roles.

But lately going through jobsites like Jobserve,etc i found that Contract roles pay way too much than permanent roles and deserved due attention!.

After googling a bit i came across this wonderful site and then eventually this wonderful post by SJD. The comparison chart for Own Ltd Co, Umberalla and Composite was very helpful.

But to take a final decision i needed a comparison with take home figures in Permanent roles. Googling more didnt help, so I just visited some gov.uk websites and checked up on the basic income tax calculations(the slabs et al) and NIC calculations(97 to 645 , 11% etc) . A basic calculation using 50000 p.a. as gross income gave me the following figures.

Gross Income £50,000 p.a.
Income tax £11,733 p.a.
NIC £3,134 p.a.
Net Income £35,133

Income for 3 years 35, 133 * 3 = £105,399 p.a.

If i compare this figure with the chart mentioned earlier. I dont see too much gain in contracting , in fact, with the Umbrella and Composite option it wouldnt make sense to contract at all!(if the decision to contract is based solely on financial gain of course)!.



Am i missing out on something here? Have my calculatioins gone awefully wrong ? Whatever the case, please enlighten me and help me make a informed choice.

Cheers!A 50K a year permie post would not pay 50K for the contract, more like 90K. Generally hourly rate works out as Salary/1000 (not 100 as Malvolio says). I like to calculate at 40 hours per week and 45 weeks per year.

<edited due to blind acceptance of Malvolio getting it wrong>

malvolio
18th July 2006, 14:39
Oops, LG is quite right, dropped a zero. Blame the heat, there's no air con in the home office...

If you're on £50k as a permie you need £50 an hour as a freelance to break even; then after all the fixed overheads and allowing for all the extra unpaid time you'll suffer, not unnaturally you come out roughly even.

Or in other words, the financial difference ain't that big any more, all things considered, for the better paid roles. You need a better reason to go freelance these days.

contraspirer
18th July 2006, 15:33
Hi Malvolio and LG,

Thanx a bunch for the clarification.

Cheers!

cojak
18th July 2006, 18:23
Of course nothing can beat the feeling when you reply "you pay me £XXX per day to give you my opinion/recommendation on best practice. If you don't like it fine - so fire me..." to a tetchy (permie) Project Manager.

:rollin:

No permie delusion that my job is actually permanent...

Newby
21st July 2006, 11:20
You can view a picture of the man with the stickiest thread on rival contractor site Shout99. He is now one of the experts on the site.

You certainly dont have much competition in the looks department from the man above you!!!

nice pic (http://www.shout99.com/contractors/index.pl?section=1&n=430)

simondolan
21st July 2006, 11:49
You can view a picture of the man with the stickiest thread on rival contractor site Shout99. He is now one of the experts on the site.

You certainly dont have much competition in the looks department from the man above you!!!

nice pic (http://www.shout99.com/contractors/index.pl?section=1&n=430)

I can supply any number of signed 10x8 pics for the ridiculously low price of only £9.95 each.

Emails to usual address.........

John Galt
21st July 2006, 12:05
Hey Simon - you've pulled :hug:

stevie
27th July 2006, 21:39
Seems like a bit of self promotion going on here SJDAccountancy, Contractor Umbrella and Contractor UK all in the same ownership. Half the post on this thread seem to be from employees of same company - how convenient!!!!!!!

Cowboy Bob
28th July 2006, 08:26
Seems like a bit of self promotion going on here SJDAccountancy, Contractor Umbrella and Contractor UK all in the same ownership. Half the post on this thread seem to be from employees of same company - how convenient!!!!!!!

From Companies House - do they look the same to you?

Name & Registered Office:
SJD ACCOUNTANCY (FINANCIAL SERVICES) LIMITED
BOWIE HOUSE
20 HIGH STREET
TRING
HP23 5AH
Company No. 03482278

Name & Registered Office:
CONTRACTOR UMBRELLA LIMITED
12 ST PETER'S COURT
ST PETER'S STREET
COLCHESTER
ESSEX CO1 1WD
Company No. 04324081

Name & Registered Office:
CONTRACTOR UK LIMITED
1 NORTHUMBERLAND AVENUE
TRAFALGAR SQUARE
LONDON WC2N 5BW
Company No. 03574763

dmini
28th July 2006, 13:44
ContractorUmbrella & SJD are linked - there is no secret made of that at all. on their websites, speaking to them etc. However Simon has stated bluntly there is no link to Contractor UK on other threads

The Lone Gunman
28th July 2006, 13:49
Is this you Simon?

http://www.shout99.com/contractors/images/S99/expert_simondolan.jpg

simondolan
28th July 2006, 13:58
Is this you Simon?

http://www.shout99.com/contractors/images/S99/expert_simondolan.jpg

Yes.......

Cowboy Bob
28th July 2006, 14:17
Yes.......

Syrup? ;)

Pondlife
28th July 2006, 14:19
Were you in Red Dwarf? ;)

simondolan
28th July 2006, 14:29
Were you in Red Dwarf? ;)


Yes. As well as owning several accountancy companies and contractor related web sites, I have also appeared in many sit coms, ITV dramas, BBC2 documentaries, and once starred as Jesus alongside Sir Laurence Olivier (who played Mary Magdelene)

Pondlife
28th July 2006, 14:41
Yes. As well as owning several accountancy companies and contractor related web sites, I have also appeared in many sit coms, ITV dramas, BBC2 documentaries, and once starred as Jesus alongside Sir Laurence Olivier (who played Mary Magdelene)

Along with your new found celebrity status on Shout99 and PCG - I expect to see you in the next round of reality TV shows. :D

brobi
31st July 2006, 07:53
Please use the PM facility if you want people to get in touch.
Thanks

dmini
31st July 2006, 08:07
Quote from website
For the moment we have limited contact details as the company is in the process of Companies House registration, sorting out an office location and development of the website

Its also one of those lovely offshore tax schemes!

I have only one comment to make :spam: ????

delsvan
22nd August 2006, 09:55
I use Dasa Consulting www.dasaconsulting.co.uk and get to keep 88% of my income! Admittedly I dont earn much compared to all you guys!

brobi
22nd August 2006, 10:05
Ok I went to their site and take home of 5,000 per month is around 2,700. How is that 88%? Maybe I missed something on their site.....

delsvan
22nd August 2006, 10:08
Ok I went to their site and take home of 5,000 per month is around 2,700. How is that 88%? Maybe I missed something on their site.....

Er, yes I think you missed something. I tried £5000 too and even with no expenses you get 2900, and the more expenses you have the higher the figure from what I understand

brobi
22nd August 2006, 10:11
So how do you get to 88%? Using a calculator I got 88% as 4,400. I use a scheme where I claim no expenses and on the same 5,000 I get 4,300. I only pay tax on 20% of my annual income.

delsvan
22nd August 2006, 10:16
I dont think the calculator is very exact as the calculation is very specific to your own individual circumstances, but this is my result (88%)

Calculation Result
Income before Tax £2100
Expenses £1000
Tax £252
Income after Tax £1848

Cowboy Bob
22nd August 2006, 10:19
Er, yes I think you missed something. I tried £5000 too and even with no expenses you get 2900, and the more expenses you have the higher the figure from what I understand

You realise that if you don't have receipts for those expenses then you are going to take it where the sun doesn't shine when the taxman comes calling?

delsvan
22nd August 2006, 10:21
Thats the beauty of it. I have receipts for all my expenses and Dasa Consulting wont allow me to claim anything without receipts.

Cowboy Bob
22nd August 2006, 10:22
Thats the beauty of it. I have receipts for all my expenses and Dasa Consulting wont allow me to claim anything without receipts.

OK, assuming that the £2100 is your per week gross, are you really saying you legitimately spend £1000 a week on expenses?

delsvan
22nd August 2006, 10:23
No, that is per month. I am not paid much yet...

Cowboy Bob
22nd August 2006, 10:25
No, that is per month. I am not paid much yet...

Even so, I find it hard to believe that you can legitimately spend 50% of your gross on expenses. Still if you have the receipts I guess you're safe...

brobi
22nd August 2006, 10:28
Calculation Result
Income before Tax £2100
Expenses £1000
Tax £252
Income after Tax £1848

Ok but your actual expenses might be train fares, petrol, IT equipment etc. So for the most part your expenses is money you spent for a service. But with mine I pay tax on 20,000 a year with no claim on the petrol (130 per month 12x130=1,560.

Calculation Result (monthly)
Income Before Tax - 5,000
Expenses (not claimed) - 160
Tax (9% account management charge) - 730
Income After - 4,110

So in summary no recipts to keep, no accounts to manage (self employed), no accountancy fees, no IR35 and overall no hassels as this firm deals with the agency directly.

brobi
22nd August 2006, 10:31
Its also one of those lovely offshore tax schemes!

I have only one comment to make :spam: ????

Call it what you will but if it saves me money and I can shout about it. Besides you gotta be in it to win it ;)

malvolio
22nd August 2006, 10:32
Ok but your actual expenses might be train fares, petrol, IT equipment etc. So for the most part your expenses is money you spent for a service. But with mine I pay tax on 20,000 a year with no claim on the petrol (130 per month 12x130=1,560.

Calculation Result (monthly)
Income Before Tax - 5,000
Expenses (not claimed) - 160
Tax (9% account management charge) - 730
Income After - 4,110

So in summary no recipts to keep, no accounts to manage (self employed), no accountancy fees, no IR35 and overall no hassels as this firm deals with the agency directly.

I think you need to talk to an accountant. If you're netting £48k it's quite likely you should be paying higher rate...

But then again, if we didn't have people boasting about their abilities to fiddle the system- or even just ignoring it completely - we wouldn't have had S134c and IR35 in the first place.

brobi
22nd August 2006, 10:35
I think you need to talk to an accountant. If you're netting £48k it's quite likely you should be paying higher rate...

No need as a friend of mine and financial advisor is a qualified tax lawyer in the UK. So I think if it was illegal he would know. Also it is safe to say that the Inland Revenue monitor this scheme very closely.

malvolio
22nd August 2006, 10:40
No need as a friend of mine and financial advisor is a qualified tax lawyer in the UK. So I think if it was illegal he would know. Also it is safe to say that the Inland Revenue monitor this scheme very closely.

Then perhaps you and your friend should read the news a bit more carefully. It may stop being legal in the not too distant future. But hey, what do I know...

brobi
22nd August 2006, 10:43
Then perhaps you and your friend should read the news a bit more carefully. It may stop being legal in the not too distant future. But hey, what do I know...

Show me the way! I am always up for some re-education.

Cowboy Bob
22nd August 2006, 10:50
Show me the way! I am always up for some re-education.

Bear in mind that if your scheme is deemed illegal that any outstanding tax will be backdateable to December 2004.

http://www.contractoruk.com/news/002585.html

Anne Redston, of the Chartered Institute of Taxation, draws attention to the Budget small print which announces a consultation on the tax and NICs position of managed service companies.

“This is the first sign that the government is considering the tax policy issues raised by composites/umbrella companies/managed service companies separately from those of limited companies set up for one worker, or a small number of connected individuals.

“These companies are widely used to supply individual contractors to big companies in the UK. HM Revenue & Customs is concerned that these companies are avoiding - or evading - income tax and NICs, and has announced that it is consulting on new rules to prevent this,” Ms Redston said.

brobi
22nd August 2006, 11:00
“Potentially under challenge are composite companies, umbrella companies, payment split via salary and dividend and payment split via partner dividend, as in the case of Arctic Systems,” explained Roger Sinclair, legal consultant at Egos Ltd."

"However, buried in the Budget’s finer print, the government says any review will accompany new powers to tackle those who hide employment income by drawing dividends, in order to take advantage of the 19 per cent small business tax.

“Since the Pre-Budget Report, further evidence has emerged that employment income is being disguised as dividends in order to take advantage of the small companies’ tax rate, often encouraged by promoters of mass-marketed managed service company schemes.


All of the above is taken from the same document you posted and this scheme is none of these. Also it's not controlled by the UK government but more on the double taxation treaty. In fact the IR uses a similar scheme themselves so it APPEARS for the moment, they wouldn't close this.

Bring back the tories!!!

brobi
22nd August 2006, 12:49
"it should not change anything for us because of the treaty in IoM
it seems that the corporate tax & NIC are going to decrease slightly, it's good to have a ltd as contractor anyway "

So that clears that up for the moment. I know these things are changing and I also know that they keep abreast of the changes that come to them by way of the Inland Revenue themselves and not the Contractor UK site.

Not knocking the site or the info because the more differences of opinion and information we have hopefully a more understood "what we can and cannot do" comes from it.

malvolio
22nd August 2006, 13:14
No, that's not the relevant bit of Government thinking. What you need to worry about is 5.86 of the last PBR:
The Government believes that all individuals and businesses must pay their fair share of NICs and tax, irrespective of legal form. It will continue to review the tax and NICs systems to ensure that this is the case and will bring forward proposals for discussion that are consistent with simplicity for compliant businesses, support for businesses in their aspirations to grow and maintaining the attractiveness of the UK as a business location.

There's that 'fair' word again. The intention is clearly that if you have income in this country, regardless of source, you pay UK levels of tax. Now that is the case right now, supposedely, so I wonder why they found it necessary to-re-emphasise this point?

djfoot
22nd August 2006, 13:44
Bring back the tories!!!

Only if they scrap IR35 outright and let things return to normality...

mankiemogwai
31st August 2006, 14:26
I posted this on this thread once before but it seems to have got lost...

I felt the best option was to avoid Umbrellas/composites and alike (based on the above nightmare stories) so I looked in to having my own Limited company run by someone else and came across this bunch - www.cakeincome.co.uk
.... it is working well for me!

DaveB
31st August 2006, 14:32
I posted this on this thread once before but it seems to have got lost...

I felt the best option was to avoid Umbrellas/composites and alike (based on the above nightmare stories) so I looked in to having my own Limited company run by someone else and came across this bunch - www.cakeincome.co.uk
.... it is working well for me!

:spam:

Pondlife
31st August 2006, 14:38
I posted this on this thread once before but it seems to have got lost...

I felt the best option was to avoid Umbrellas/composites and alike (based on the above nightmare stories) so I looked in to having my own Limited company run by someone else and came across this bunch - www.cakeincome.co.uk
.... it is working well for me!

Smells like :spam:

Edit: Damn! Would have been quicker but I only use two fingers to type.

HStanton
7th September 2006, 14:28
Hi all, first time poster, long time reader.

Work for an accountancy myself, won't mention the name.

The real problem with composite's now isn't to do with IR35 it's to do with associated companies.

As you all know, small companies CT is 19%, large companies is 30%. Composites will claim that each ltd company under it is a seperate entity and so it's turnover qualifies for small CT. However the gov has argued successfully twice last year and twice more again this year that all of the ltd companies under the composite are associated because the comp is in control of accounts. Hence the total turnover is vast and qualifies for large CT.

We took on two guys who were personally liable for £15k in backtaxes due to the 11% shortfall.

malvolio
7th September 2006, 14:55
Now that's an interesting comment. And could be interesting if followed to a conclusion - what's the potential tax take on 30,000 users of composites underpaying by 19%, back-dated to December 2004... roughly £950m?

I can see the headline now - "Brown initiative recovers £1bn in unpaid taxes". Anyone would think there's an election coming up.

academic
25th October 2006, 20:40
Hi,

I am moving into contracting world. Have two options , start my own Limited or join with a friend of mine as director( he doesn't have one , we want to register it together). I understood from this post that HMRC targets composite companies than own Limited companies.

When is a company called as composite ?? When my self and my friend start a company and we both are directors , is that called a composite.?? Or a group of people...

My wife will be secretary & his wife as another employee..

I want to take a decision based on your opinion.


Thansk in advance for your answers.

Thanks,
Academic

malvolio
25th October 2006, 21:01
What you contemplate is not a composite, which, put simply, is a holding company issuing shares of different classes to individual shareholders such that they can be paid dividends in proportion to the fees they bring in, purely in order to avoid paying NICs on that portion of the income.

However, if you don't know that, what else don't you know? Have you got an accountant? I think you need one, quickly...

Sockpuppet
25th October 2006, 21:04
Hi,

I am moving into contracting world. Have two options , start my own Limited or join with a friend of mine as director( he doesn't have one , we want to register it together). I understood from this post that HMRC targets composite companies than own Limited companies.

When is a company called as composite ?? When my self and my friend start a company and we both are directors , is that called a composite.?? Or a group of people...

My wife will be secretary & his wife as another employee..

I want to take a decision based on your opinion.


Thansk in advance for your answers.

Thanks,
Academic

Never take a decison based on our opinion. Get professional advice!

That would not be a composite company, well certainly not one big enough to attract HMRC attention. They are after the people like 1stcontact who just register stupid comapny names and fill them with punters.

Also never mix business and pleasure. I'd register them as 2 seperate Ltd companies unless you are working together. If you are working on seperate things then its probably not the best idea. I keep all of my money well away from friends, it has a nast y habit of making people act crazy.

Lucifer Box
26th October 2006, 06:00
Hi,

I am moving into contracting world. Have two options , start my own Limited or join with a friend of mine as director( he doesn't have one , we want to register it together). I understood from this post that HMRC targets composite companies than own Limited companies.

When is a company called as composite ?? When my self and my friend start a company and we both are directors , is that called a composite.?? Or a group of people...

My wife will be secretary & his wife as another employee..

I want to take a decision based on your opinion.


Thansk in advance for your answers.

Thanks,
Academic
If you are a typical freelancer, that is an insane suggestion. What happens when you and your friend fall out? Or if one of you is earning and the other is on the bench?

Unless you are genuinely founding a joint venture consultancy, each get your own Ltd and a decent accountant. A cursory search will give you the usual recommendations of this board as to an accountant who will set it all up for you.

freshblue
3rd November 2006, 14:30
I posted this on this thread once before but it seems to have got lost...

I felt the best option was to avoid Umbrellas/composites and alike (based on the above nightmare stories) so I looked in to having my own Limited company run by someone else and came across this bunch - www.cakeincome.co.uk
.... it is working well for me!

"Are you Gabem in disguise, Are you Gabem in disguise" :rolleyes:

gadgetman
10th November 2006, 11:47
I am about to move perm to contract and am trying to decide which way to go in terms of umbrella, LTD co etc. I have contracted in the past (before IR35) and think I have a good handle on the issues.

There seems to be a consensus in this forum the Ltd Co is a good thing. However, assuming the worst case that my contract is within IR35 I can't see much to recommend Ltd Co over Umbrella. Are there any significant factors I am missing?

Nixon Williams
10th November 2006, 15:07
I am about to move perm to contract and am trying to decide which way to go in terms of umbrella, LTD co etc. I have contracted in the past (before IR35) and think I have a good handle on the issues.

There seems to be a consensus in this forum the Ltd Co is a good thing. However, assuming the worst case that my contract is within IR35 I can't see much to recommend Ltd Co over Umbrella. Are there any significant factors I am missing?

Operating through your own limited company you will benefit from the VAT Flat Rate Scheme and from the 5% allowance even if caught by IR35. Both these will provide you with more than an umbrella.

Feel free to email me if you want an illustration sending to you.

Alan

3rdknight
11th November 2006, 10:45
Hi all, fascinating thread ... so much so that it's prompted me to add my inaugural reply!

Dragging this thread screaming and kicking back on to topic(ish) ... somewhere back along there was brief discussion about paying minimal salaries and the rest in dividends up to higher rate tax thresholds, keeping the residue in the company.

I'm just about to start contracting and getting myself organised as we speak. I seem to recall having seen some discussion in the past about monthly dividends attracting unwanted attention from HMRC ... is this true? Is it generally considered better practice to pay them quarterly?

I suffer from an exhorbitantly oppressive mortgage payment, a wife and two kids - not sure they'd appreciate me dropping to minimum wage! :D

freshblue
12th November 2006, 18:40
I'm just about to start contracting and getting myself organised as we speak. I seem to recall having seen some discussion in the past about monthly dividends attracting unwanted attention from HMRC ... is this true? Is it generally considered better practice to pay them quarterly?


Most of the "managed" composites e.g. Brooksons / Nixon / Giant etc pay divi's in the same timescale as the funds received so based on that frequency you get the benefit there and then. Quarterly dividends I guess could be deemed more business like e.g. you are assessing the profitability in the business before paying. Smoke and mirrors....

Gonzo
12th November 2006, 18:58
Hi all, fascinating thread ... so much so that it's prompted me to add my inaugural reply!

Dragging this thread screaming and kicking back on to topic(ish) ... somewhere back along there was brief discussion about paying minimal salaries and the rest in dividends up to higher rate tax thresholds, keeping the residue in the company.

I'm just about to start contracting and getting myself organised as we speak. I seem to recall having seen some discussion in the past about monthly dividends attracting unwanted attention from HMRC ... is this true? Is it generally considered better practice to pay them quarterly?

I suffer from an exhorbitantly oppressive mortgage payment, a wife and two kids - not sure they'd appreciate me dropping to minimum wage! :D

Personally, I feel that paying yourself monthly dividends could draw the accusation from HMRC that the payment is salary and therefore they are due NI (employer's and employee's) on the payments - especially if your dividends are the same every month.

However, I have seen posts on here from a respected accountant (using their own name and reputation) stating that there is nothing wrong with monthly dividends provided that they are paid out of profits. So you probably don't want to take my advice but ask a professional. Do actually ask a professional though rather than rely on messages on here!

I did not receive any salary or dividends from my company for the first six months of contracting , however I had made contingency plans for that eventuality before I took the plunge.

3rdknight
13th November 2006, 11:59
Do actually ask a professional though rather than rely on messages on here!
Don't worry, I am about to book my first appointment with my accountant now! It's one of the many questions on my list... ;)

Nixon Williams
15th November 2006, 12:59
Most of the "managed" composites e.g. Brooksons / Nixon / Giant etc pay divi's in the same timescale as the funds received so based on that frequency you get the benefit there and then. Quarterly dividends I guess could be deemed more business like e.g. you are assessing the profitability in the business before paying. Smoke and mirrors....

Just to point out that Nixon Williams does NOT operate composite companies. we only offer straight limited company operations.

We do assess the profitability of the business when calculating all dividends, there is no smoke and mirrors involved.

Alan

MobileCheese
6th December 2006, 21:47
update : defo dont go with a composite

Wvari
7th December 2006, 19:46
If a contract falls within IR35, and I am working through my own limited company, is the cost of using an fully inclusive accountancy service such as that offered by Nixon Williams tax deductable?

I've never contracted before and have read the guide here at the start of the thread but am starting a new contract from 3rd Jan with a company that insists on a business to business relationship and that I contract though my own limited as opposed to operate as a sole trader.

I take it that I could claim all legitimate business running costs and equipment I need such as a laptop as legitimate expenses, then claim the remainder of the monthly payment as salary and pay normal rates of NI and Income tax...

What about Corporation tax? If the expenses to legitimately run the company + my salary = 100% of the money coming into the company, I take it I pay 0 corporation tax?

MobileCheese
7th December 2006, 19:49
If a contract falls within IR35, and I am working through my own limited company, is the cost of using an fully inclusive accountancy service such as that offered by Nixon Williams tax deductable?

I've never contracted before and have read the guide here at the start of the thread but am starting a new contract from 3rd Jan with a company that insists on a business to business relationship and that I contract though my own limited as opposed to operate as a sole trader.

I take it that I could claim all legitimate business running costs and equipment I need such as a laptop as legitimate expenses, then claim the remainder of the monthly payment as salary and pay normal rates of NI and Income tax...

What about Corporation tax? If the expenses to legitimately run the company + my salary = 100% of the money coming into the company, I take it I pay 0 corporation tax?

:spam:

Wvari
7th December 2006, 19:56
How exactly is asking these questions spam?

JLeduc
8th December 2006, 09:00
:spam:

Getting tired of people blaming every second post as spam.

It's an open forum and aimed at providing contractor advice.
Being specific by naming accountancy firms is part of it and IMHO feedback about how well people get on with accountancy firms are very welcome.

Not everybody is posting 2000 times a week and frankly I expect most people are either newbies or simply interested readers rather than frequent posters. So having a low post count does not automatically mean a positive comment about a specific company is spam.

I can very well make up my own mind about whether or not I believe comments in this forum and I have no doubt most other readers are clever enough to make the such decisions for themselves as well.

Blaming people for spamming is inconsiderate, unhelpful and quite frankly rather offensive.

Personally I would like to see much more recommendations and feedback about what people like or dislike about the accountancy firms / service companies they use.

All that spam blaming does is that it makes people weary of posting positive feedback for fear of getting blamed and as such is very counterproductive.

PS: If I wanted to promote my Co here I could work up my post count quite easily by posting a bunch of spam claims to become more trustworthy.. now there is a thought!

Wvari
11th December 2006, 01:57
I mentioned them literally as they were in the post above me and were relevant to what I was describing.

Sockpuppet
11th December 2006, 09:34
I mentioned them literally as they were in the post above me and were relevant to what I was describing.

Personally I really doubt that you could claim as "legitimate" business expenses to that degree. There is no limit on them but what about things like mortgages, rent, food etc?

Wvari
11th December 2006, 12:12
Ok lets simplify it:

If you use any accountant to handle your tax/expenses, is the cost of doing so a legitimate tax deducatable expense? It doesnt seem unreasonable to claim this.

freshblue
13th December 2006, 21:58
Ok lets simplify it:

If you use any accountant to handle your tax/expenses, is the cost of doing so a legitimate tax deducatable expense? It doesnt seem unreasonable to claim this.

Yes - these are expenses of being in business.

Foresight One
25th April 2007, 15:56
Dear all

There are still compliant solutions out there for contractors working in the UK. If you are serious about looking for an advisor then please contact me by PM (chrism@foresightone.co.uk) and I would be happy to discuss various solutions based on your circumstances.

brobi
5th May 2007, 22:36
Dear all

There are still compliant solutions out there for contractors working in the UK. If you are serious about looking for an advisor then please contact me by PM (chrism@foresightone.co.uk) and I would be happy to discuss various solutions based on your circumstances.

and none of them involve 95% of the accountantcy firms in the UK. Foresightone included! Well they don't even have a website any more! Unless they never did...

My accountant can help any of you! You will save loads of money! Under umbrella and PSC's I would pay £500 - £600 per week in taxes. This method I pay that in one month!

offshore junkie
27th May 2007, 02:21
and none of them involve 95% of the accountantcy firms in the UK. Foresightone included! Well they don't even have a website any more! Unless they never did...

My accountant can help any of you! You will save loads of money! Under umbrella and PSC's I would pay £500 - £600 per week in taxes. This method I pay that in one month!

brobi do you do any offshore mitigation? I have just started contracting and need a good accountant. Would it be possible to have their details please?

D7V
31st May 2007, 19:01
Ltd is the only way to go.
If you have risk then you're clear.
Here's risk - I spend £3k learning to speak French to get a Paris contract - I don't get a Paris contract - my Ltd company has lost £3K.
Net result is I always wanted to learn French and I got to do so at the expense of my Ltd Company. Boat yard salesmen in Nice like it when you speak French and gave me £3K off my boat!

M@H
4th June 2007, 14:03
HI, 1st post. (not spam! :))

I have been contracting for some 3 years and left it in Dec 2006 for a bit of a break. Before I was with a "scheme" which is now no longer available, and now having come back inot contracting this month, have realised that PAYE is going to be disasterous so will be setting up a Ltd co. My quiestion is 2fold:

1st: I don't need all of my income as "salary" at all and would quite like to build up some sort of investment within the company (a land bank or something), can I simply spend the company money on long term investments, then sit back and see what happens.?

2nd: is there a good way to make these "purchases" to enable me to be tax efficient about reaping reward on them later? (charitable trust within the company..? sell at a loss back to myself in future ? pay tax up front, rather than later on..?)

Many thanks,
Matt H.

kieranr
27th June 2007, 00:09
Hi everyone,
Inside IR35

If you fall inside IR35 then the tax payable via an umbrella or composite Company will be around the same. There will be a saving of around 5% if you operate through your own Limited Company.

Hope this helps, and feel free to add anything else you think useful.

Does this mean that I make 5% more of my gross, or 5% more of my net that I would get through an umbrella.

How much extra time per week do people find that it takes to do a ltd company than an umbrella?

Thanks, Kieran

vhadiant
20th August 2007, 11:36
How much extra time per week do people find that it takes to do a ltd company than an umbrella?

Almost negligible. I used to be with an umbrella company (Parasol) until May 2007. At that time, my visa doesn't allow me to setup a limited company, now that I have HSMP I have my own Ltd Co.

Yes it does a bit more overhead, but if you use a company formation agent like Nixon Williams or SJD they'll do everything for you. There will be some backward & forward snail mails for signatures but that's it.

Every month I still have to do your timesheet, invoices just like when I'm with umbrella company. The only difference now that I have my Ltd Co I have to raise invoice myself, send the invoice to the agency and monitor the incoming payment.

Fax the invoice, expenses to my accountant, they figure out how much salary I can take out & expenses. Then transfer the money out myself.

To take money as dividend simply fax the dividend payment request to the accountant, then transfer the money myself.

I think the above extra steps worth the extra few thousands take home that you will get rather than having the Umbrella company.

MarkW
15th September 2007, 12:02
Lots of potentially good information in this thread, I say potentially as most of it I do not get!

First time contractor looking to sign a contract on Mon/Tues next week, so a bit stuck for time.

Can anyone give me an idea as to how much it cost to register a Ltd Co. and how quickly can it be done? I am guessing one of the longest things could be registering for tax?

I like the table on the first page, however, does the ltd co. row take into account any accountancy fees or setup fees?

Seriously tempted by an Umbrella company (have had parasol and JSA recommended to me) due to the speed of setup.

One other question, I am in rented accomodation at the moment, have a feeling that I would not want to register the company to this address. I would not want to rent a physical office, so what would be the best way of registering the company?

Typical noob questions no doubt, but very relevant to the subect of this thread, so thought it would be best to start here!

sathyaram_s
15th September 2007, 17:12
If you have one week to sort things out, then limited company is the best bet, IMHO .. IR35 inside or outside doesn't matter ...

VAT registration takes a couple of months, which hardly has any impact ...

You can get you company setup in less than half-a-day if you use online setup .. It costs anywhere between 50 - 150 pounds depending on the provider you use ... Go for a provider you are comfortable with .. Remember, this is a tax-deductable one time expense, and therefore getting it right is more important than saving a few quids.

Make sure you check your contract for IR35 and try to get it ouside ..

Accountancy fees is anywhere between 600 and 1500 pa. You should find a number of recommendations for accountants in the fora .. It is advisable to go with an accountant who has knowledge in contracting affairs. Some prefer to have an accountant local to them while others are happy with the telephone and email service provided by some accountants .. As a first time contractor, it is better to use the services of an accountant.

I use my accountant's address for regd office and pay £150 per annum for the service. Some accountant's annual fee includes this service. And you can use your home address or virtual office services ( who collect your post and forward to your address . eg. http://www.londonpresence.com/ ) as 'Address for Communication'














Lots of potentially good information in this thread, I say potentially as most of it I do not get!

First time contractor looking to sign a contract on Mon/Tues next week, so a bit stuck for time.

Can anyone give me an idea as to how much it cost to register a Ltd Co. and how quickly can it be done? I am guessing one of the longest things could be registering for tax?

I like the table on the first page, however, does the ltd co. row take into account any accountancy fees or setup fees?

Seriously tempted by an Umbrella company (have had parasol and JSA recommended to me) due to the speed of setup.

One other question, I am in rented accomodation at the moment, have a feeling that I would not want to register the company to this address. I would not want to rent a physical office, so what would be the best way of registering the company?

Typical noob questions no doubt, but very relevant to the subect of this thread, so thought it would be best to start here!

MarkW
16th September 2007, 10:55
Sorry, when I say next Mon/Tues, I mean tomorrow!

ChimpMaster
5th October 2007, 12:49
Sorry, when I say next Mon/Tues, I mean tomorrow!

Wilko? :wave:

ksareen
8th October 2007, 14:25
As a reference if it helps, I have been with Darren Upton (Upton and Company Accountants) for nearly one year and have had brilliant support, information and excellent response time... never missed a date!

When I started my ltd company, I also found that fees between various accountant companies vary, but the net result is same (working out the taxes)!

With Upton and company, I got free company name, VAT registration, company bank account set up and great support from day 1.

aussie_gal
7th December 2007, 14:53
I've only just started contracting in IT however by looking at various websites and speaking to them also parasol, giant, norla, no longer limited, orange genie among various others, all i imagine offer similar solutions but when speaking to them they all blow their own trumpet which is fair enough. However what would be the best one??? Is this the route i should go down or is there better options
advice would be much appreciated

If it helps I have been contracting through Consultants Exchange (CXC) http://www.cxcglobal.co.uk
for a couple of years now and ive always found them really reliable and helpful. I know some of my friends have had real problems with their umbrella providers...always stuffing up their pays and misadvising etc so you should check CXC out...

Hope that helps!

Fred Bloggs
10th February 2008, 20:08
Large parts of this thread have been overtaken by legislation, particularly the MSC legislation and the Income Shifting legislation. Surely this thread needs some serious editing and updating?

multiuk
10th March 2008, 15:51
Hi Fred, can you (or anyone else) share what you know.

I agree, there is definitely a need for up to date info here and no better place than this sticky.

I am shortly thinking of going contracting and I intend to use an umbrella company ideally, or my own company.

Will be much appreciated.

cheers
multiuk

malvolio
10th March 2008, 16:14
The only thing that's changed is the MSC legislation. Since nobody is selling them any more (at least, not to newbies) they're hardly relevant. Income shifting hasn't happened yet, and your accountant will advise you anyway.

Enagage brain, get your own company.

multiuk
10th March 2008, 17:16
thanks malvolio, so I take it that both umbrella companies and Ltd companies are still legit then? I know that you should ideally get a contract drawn up to be outside IR35 if going with your own Ltd company but does that not matter for an umbrella.

Last I heard, everyone was saying that all were illegal and all you could do was run a Ltd to claim expenses, and that both umbrellas and composites were illegal.

And yet I work with many contractors who are currently using either (umbrella or Ltd).

It's all incredibly confusing.

malvolio
10th March 2008, 18:00
It's all incredibly confusing.
No it's not, it's perfectly simple. But before I go into the depths of explaining it all yet again, go read the First TImer guides we keep telling people to read, the one here, the PCG one www.pcg.org.uk (http://www.pcg.org.uk) and the SJD one on www.sjdaccountancy.com (http://www.sjdaccountancy.com). You're also posting in the one thread that explains it all carefully and in great detail.

Also disregard you local contacts, they are clearly unaware of the real world or are simply winding you up. Stick to what the people on here are telling you.

And the next question you should ask is not "How does it all work then". You want to be a contrctor, start thinking (and finding out) for yourself.

sozz7
19th March 2008, 11:11
From my experience of contracting with by both forming a Ltd company or not by using a unbrellas such as CPS, Atlantic etc, I would say avoid the Ltd route, companies such as Brookson will tell you how easy and risk free it is, but their advice is biased, if you don't have a 12 month contract and stop using Brookson within 12 months you will be left holding the baby, i.e. you will have to pay for Ltd company tax returns and £400 for cessation of accounts to close the company

Their figures don't add up, they don't include these costs when providing prospective clients with earning potential

:tantrum:

MPwannadecentincome
21st August 2008, 16:25
I think I'm seeing the limitations of working for an umbrella and I've only been contracting a few weeks.

1) Parasol will not allow interview travel costs to be expensed - I'm sure this is a legitimate business expense after all what do sales people do all day?

2) If I take a contract working from home I cannot claim for anything other than itemised phone calls. I'm sure as a Ltd company I could expense a small amount per week, used to be around £18 per week a few years ago I think.

I've yet to discover other limitation....:frown

NotAllThere
21st August 2008, 18:57
...
2) If I take a contract working from home I cannot claim for anything other than itemised phone calls. I'm sure as a Ltd company I could expense a small amount per week, used to be around £18 per week a few years ago I think...

No. You can ONLY claim expenses incurred, and get the tax deducted from corporation tax, if they are legitimate, receipted business expenses.

The advantage of ltd over brolly has been discussed many times. Go read the first timer guide. (http://www.contractoruk.com/first_timers/index.html)

MPwannadecentincome
26th August 2008, 23:11
No. You can ONLY claim expenses incurred, and get the tax deducted from corporation tax, if they are legitimate, receipted business expenses.

The advantage of ltd over brolly has been discussed many times. Go read the first timer guide. (http://www.contractoruk.com/first_timers/index.html)

The rules must have changed then, 6 years ago my wife's ltd company was allowed to expense use of home for an office for £18 per week which was standard 'accountancy practise at the time, this limit was set so as not to cause issues with capital gains tax on the home for the element of business use.

jlay
2nd September 2008, 15:10
No. You can ONLY claim expenses incurred, and get the tax deducted from corporation tax, if they are legitimate, receipted business expenses.

The advantage of ltd over brolly has been discussed many times. Go read the first timer guide. (http://www.contractoruk.com/first_timers/index.html)

Although I am not new to contracting I am looking to close limited as have had bad advice from my accountants so am looking at all the options.
Cant believe that one of the first adverts on contractoruk.com is for payschemeplus/TRM

breezeblocker
26th September 2008, 12:20
Have come across this site http://www.due2pay.co.uk . It looks to be what industry has been lacking in terms of teeth to tackle late payment from Limited Companies. Put details of a company in and you can see if they are late in paying their account invoices. Neat little trick feature which I haven’t seen anywhere else is their watch list. They will email you when a company you have concerns with is listed on the site. You can email the late payer and even better, email the company which listed them. Got a free period , worth it joining up especially when a company might be going down the pan, they aren’t paying you but are looking for other suppliers.

ProfContractor
20th October 2008, 22:37
My opinion is the safest thing to do right now is to go for the limited company option. I can't see how the revenue can legislate against this without impacting on all small companies.

PC

daedalus
15th January 2009, 01:03
Sorry for bringing up this topic again.
I'm planing to work in Luxembourg for 5 months, flying home every weekend.
My agency is based in the UK.
Is it legal to use my own Ltd. (UK-based) for billing in this case, if the work is limited to less than 6 months?

I got a bit confused by the abundance of information here.:freaky:
Thanks for any comments!

dave20
16th February 2009, 14:25
It is legal for you and your company, you're just invoicing your agency in the UK, They are then subcontracting you to luxemburg.

The rule regarding six months is normally, if your there for 185 days or more, you have to pay tax there as a tax resident. this is different for each country so double check the tax residency rules for luxemburg. (this is for you individually, your company will always be in the UK)

thugusher
4th March 2009, 12:23
hi! im just about to start my 1st contract job and from what i have been reading in various forums i am more interested in going the ltd route. i need advise on a reasonable about to store away for taxes i.e company, personal income tax e.t.c. is 25% ok. im not too keen on umbrella route. i'll be on £200/ day. advice will be appreciated. :tongue

nakvis
12th March 2009, 11:35
Hi,

I am planning to start my own LTD company. I am planning to start the company as "Private Company Limited by shares". I am working as a contractor for an agency.

I have few questions in this regard:

Can my wife be director or just an employee of the company?

I am paid Per-Diem allownace (say £20.00 per day) by my agency if I work out of my base. Now this income goes to the company I am starting. As an employee, can I claim any Fixed Per-Diem alloanwance (say £25.00 per day) which can be tax free income?

Is there any benifit of having my wife is only the director of the company and myself just as an Employee?

Can anyone please advise good / reliable accounting firm?

Thanks!

cojak
12th March 2009, 13:04
Hi,

Is there any benifit of having my wife is only the director of the company and myself just as an Employee?

Can anyone please advise good / reliable accounting firm?

Thanks!

How strong is your marriage? Are you confident that you won't divorce while you're in business? I have heard of horror stories of marriage breakdowns and bank accounts being cleaned out before the dust settles...

As for accountants - SJD Accountancy, also THE PUMA has also been recommended to me but I don't know his real-life company.

nakvis
12th March 2009, 14:14
Hi Cojak,

Thanks for your response.

Marriage is not a problem for me at all....so nothing to worry about....

Thanks for your advise for the accountancy names....

Is there any advise on type of the company (Private company with limited shares.....public limited ....etc) and having my wife only as a director???

Thanks

ASB
12th March 2009, 15:04
You probably don't want a PLC dues to the initial share capital required and the auditing and reporting requirements. The norm would sdimply be a standard private limited company.

nakvis
12th March 2009, 15:12
With Private Limited Company, can we still take devidends??

Arghhhh!
14th May 2009, 10:00
Hi,
I currently work as a self employed person who contracts via an umbrella company. Recently the work has dried up so I am not going to be working on a contract for the umbrella company. I am thinking of joining a small Ltd Company as Director to start a new venture (the director of this company already operates 2 other businesses through his Ltd company and want to add a 3rd business line) .
Questions are:
1 - Do I have to change my Self Employed status to Employed (if I become a director of his company)?
2 - do you know if I can keep my options open i.e stay self employed and also be a director & work on separate contracts not connected with the umbrella company?
3 - Also are there tax/ni/IR35 implications for me?
4 - Can you suggest another way i can work so that I can get work from both the umbrella company or the ltd company?
R.

kindaichi0510
14th July 2009, 22:00
With Private Limited Company, can we still take devidends??

Yes, you can still take out dividends if you set up a private limited company, because this means the company has shareholders - and therefore able to distribute the company's profit as "dividends" to its shareholders.

JPE
30th July 2009, 08:25
Hi Simon

Just wondered what your opinion was on IOM based companies like Steed Solutions? Pros and Cons?

Thanks

JPE

DaveB
30th July 2009, 09:48
Hi Simon

Just wondered what your opinion was on IOM based companies like Steed Solutions? Pros and Cons?

Thanks

JPE

Go and read the BN66 threads for an insight into just what can happen with these schemes. General opinion on the forum is that they are "Not A Good Thing".

JPE
30th July 2009, 15:49
Go and read the BN66 threads for an insight into just what can happen with these schemes. General opinion on the forum is that they are "Not A Good Thing".

Dave - thanks for the tip - it makes interesting reading. A friend has started using Steed Solutions and took advice from a tax consultant who advised him to go for it!! The scheme pays via "loans" which sounds dubious. Just wondered if anyone else uses this type of scheme?

sal626
30th July 2009, 16:24
I was in a loan scheme 05/07, which was similar to what Steed now offer.
It is not the same as the scheme offered by Montpellier which is what the BN66 thread is about.

There is a risk associated with these schemes, and its too early to say if they can be successfully defended or not. Saying that, I know of two schemes that are being queried (which is different to being investigated), and so far they have been successfully defended – by the scheme providers. In fact, the Special commissioner has twice ruled against HMRC on these, and in the second ruling, HMRC actually withdrew their appeal. The scheme providers are now actually chasing HMRC to close the query.

By joining one, it doesn’t mean you will 100% get done by the taxman, but it also doesn’t mean that you will never be queried/investigated. As of today, I am not aware of any EBT schemes that have been successfully challenged and closed (in the last couple of years). IMO, the govt will probably (have to) legislate to close these schemes soon…

Maslins
26th September 2009, 08:04
These offshore schemes are obviously appealing...but the risks involved are pretty huge.

Legislation is changing all the time, so it means you constantly need to keep yourself up to date on what's going on to ensure your scheme hasn't just been trumped. Sure, most of them are sufficiently clever in that they rely on the tax laws of the offshore company, and only "loan" money to you in the UK (HMRC are unlikely to be stupid enough to start taxing loans), but sooner or later they will be stopped.

Even if HMRC can't "get you" on the actual scheme itself, rest assured you will be a marked man/woman, and you'd better make sure you're absolutely squeaky clean elsewhere (taxwise...they don't care whether you wash or not).

You'll also typically find the scheme's fees involved are pretty huge (mainly because the provider knows its days are numbered...so even if it does work, they need to milk it now before it's stopped). Sure, the fees'll no doubt be less than the tax you're saving, but by how much, and is it worth it?

Far safer to "play friendly" and stay off the HMRC radar IMO.

bigbrainbrad
26th October 2009, 07:48
Hi - I know this discussion has probably gone back and forth, but I want to know whether anyone is using or has successfully used an EBT structure, I've heard that this is the most effective way to manage UK salary.

malvolio
26th October 2009, 09:27
Hi - I know this discussion has probably gone back and forth, but I want to know whether anyone is using or has successfully used an EBT structure, I've heard that this is the most effective way to manage UK salary.

Sigh... Poor misguided fool....

obelix
10th November 2009, 20:22
iam a newbie...i'll start with a silly question.

the comparison stats on the first post does not include the personal tax liabilties...was wondering if the comparison would look more favourable to umbrella co. considering that the paye tax is considered before its paid to the contractor

jetrimby
21st January 2010, 13:13
HI, New on site so please dont shoot me down too hard! Picked up a thread from another site and saw some of the comments.
First I run a v small accounting practice specialising in tax and with some 20 years experience have seen a few contractors over the years!
There is a lot of knocking of offshore companies on this site and I am sure they are often justified but I think it must be pointed out that, most especially where IR35 is a risk or reality, the savings can be huge.
The Revenue have tried to attack some of them and failed and more importantly they have so far failed to find a way of changing the legislation to attack them without effecting too many others.
I joined a specialist network to widen my possible assistance into loophole planning and this was the easiest structure to understand as it uses very basic tax law in a clever way.
I do not yet have any clients in a scheme but have discussed with a couple of businesses about it and in detail with the providers, but not always suitable or appropriate.
I wouldnt use an "off the net" one or a totally overseas based one. Get a recommendation from someone or from a uk professional. Make sure the scheme is backed by barrister opinion (their reputation and insurance is then on the line!) and make sure the costs are reasonable. If through a uk accountant make sure you drag them into the decision as well they will be earning from it!
I would also recommend that all normal basic tax planning is done (ie get the company to pay into your pension/get them to pay some basic expenses/make sure you are getting paid the minimum wage etc as normal uk salary (will help with uk state penison as well) AND tuck some of the savings aside incase worse happens

WORSE CASE you should not be on your own if it is a professional company with UK backing so any winding up of the system should be controlled. If you use a foreign (rather than UK tax haven) they could just close and you try suing someone in Lux' ! There also shouldn't be penalties as the revenue has lost too many battles on this to justify you doing anything wrong.

The EBT (Employee Benefit Scheme) is used in many savings schemes and many of them are still being introduced to large companies by the big accounting practices for very wealthy people so why shouldn't the normal person get a chance sometimes!

Sorry to buck to forum trend James

JulesInch
24th May 2010, 22:38
I'd go farther and say that this should be a sticky thread at the top, and newbies should read it before asking those same questions less cogently.

Aye, me too. Good succinct post that every one should read. Sticky, please!

cojak
4th May 2017, 15:43
This thread is massively out-of-date.

Would someone please consider a separate post along the same lines? I'll replace this with that one.

TIA Chaps...

midlandlass
5th May 2017, 09:16
Let me have a think and I will put something past you :happy

northernladuk
12th December 2017, 11:49
Let me have a think and I will put something past you :happy

Still thinking?

midlandlass
12th December 2017, 15:54
It's a complex world you know :tongue

Let me work through Xmas and come back to you!!

Maslins
13th December 2017, 09:51
My take on it, are you confident that:
1) you'll be contracting for at least one year, ideally 2+, and
2) your contracts will most likely all be outside IR35, and
3) you're reasonably competent with paperwork/finances?
If yes to all the above, form a Ltd Co.

If no to any of the above, go umbrella. Reasons being:
1) if it's very short term, the hassle of setting up a company, registering it and yourself for various taxes, only to need to reverse all of that months later easily outweighs any benefits.
2) if they'll mostly be inside, then by trading via a Ltd Co you'd pay all the tax of an employee, yet have the trivial rights and significant responsibilities of a contractor (ie worst of both worlds).
3) even with the help of snazzy software and an accountant, you'll still need to keep track of lots of admin things, and ensure you set aside sufficient funds for taxes when they fall due.