Advice needed on whether to go Limited for a 3 month contract

**LisaContractorUmbrella** · 15 March 2012, 08:18

First question would be - are you inside or outside of IR35? Second question - do you intend to contract again after this 3 month contract is over? In answer to whether there is something you are not being told about the set up and shut down costs - nope

**Jeremiah@RHJAccountants** · 15 March 2012, 08:32

The main things to be aware of is are you inside or outside IR35 and do you intend to contract after the 3 month contract?

If you are looking to be a full time contractor then having a limited would be the best option.

Why not ask your potential new accountant if they can produce a schedule of what you would take home if you were limited and compare what you would take home if you were Umbrella.

Make sure you include all the expenses you would take over the 3 months.

i am sure they would be happy to do that for you as i a do for my clients

good luck

**northernladuk** · 15 March 2012, 08:36

I would advise you went umbrella for three months. It looks like you are struggling with this whole contractor thing. If deciding how you want to run your finances is difficult for you you are going to need time to grasp the culture of contracting, IR35, expenses and so on. Going umbrella won't be the most effective method (if outside IR35) but it is easy and won't kill you for 3 months.

Just to note. I went umbrella for 3 months to start as well. Nice easy intro, got my head around contracting while doing more research on LTDs and got my first contract under my belt.

Other option is to screw yourself over and put yourself in trouble before you even got your 2nd one.

**Clare@InTouch** · 15 March 2012, 08:52

For a three month contract you'd be looking at around £18,600 turnover, so you're not going to make a massive amount of profit under a limited company once you take into account the professional fees for starting a company, running it, then closing it. Have to agree with NLUK that brolly would be my advice, unless there's a good chance you'll get another contract after this one or use the company again in future.

I would suggest you call a few accountants and ask them for income comparisons so you can see the exact amounts you'd take home under each option, then you can decide if the extra £ is worth the effort of starting a limited company only to close it again soon after.

**fdama** · 15 March 2012, 12:48

Thanks for all your replies.

@LisaContractorUmbrella

First question would be - are you inside or outside of IR35? Second question - do you intend to contract again after this 3 month contract is over? In answer to whether there is something you are not being told about the set up and shut down costs - nope

I discussed this with the accountancy and they said that they offer a free review. They said that the vast majority of people fall outside IR35. If I am in IR35, then I will not even consider going Limited.
When this contract is over I may or may not go contracting again. It all depends on my circumstances and what opportunity comes my way, whether Permanent or Contract.

@northernladuk

Other option is to screw yourself over and put yourself in trouble before you even got your 2nd one.

This is where I need clarification. What trouble can I get in? Is the paperwork? Is there a hidden cost somewhere that I am not aware of?

@clare@intouch

For a three month contract you'd be looking at around £18,600 turnover, so you're not going to make a massive amount of profit under a limited company once you take into account the professional fees for starting a company, running it, then closing it

The fees that SJD charge are approximately £150 for the initial setup, £130 per month for accounting and £150 to shut the company down. With these fees, won't I benefit from going Limited considering that I will take ~80% of the turnover as opposed to ~60% under the Umbrella?

Looking forward to your replies.

**LisaContractorUmbrella** · 15 March 2012, 13:15

What exactly is it that you are going to be doing? You cannot rely on someone saying 'most people are outside IR35' to make your decision on how to operate. What are your working practises, are there permies at the site doing the same job that you will be doing, do you have to supply any equipment???

**Clare@InTouch** · 15 March 2012, 13:47

Originally posted by fdama View Post

@clare@intouch

The fees that SJD charge are approximately £150 for the initial setup, £130 per month for accounting and £150 to shut the company down. With these fees, won't I benefit from going Limited considering that I will take ~80% of the turnover as opposed to ~60% under the Umbrella?

Looking forward to your replies.

If your salary through the rest of the year puts you into higher rates, so over £43k, then your dividends will be taxed in higher rates. That's personal tax of 25% of what you take out. Add that to 20% CT and there's no chance you'd get an 80% take home value.

The reason a limited company gives a take home of 80% is that it assumes most of your dividends are basic rate and therefore tax free - that may well not be the case for you. What you need to do is get a full review of your whole year's income in order to establish the real tax suffered for you specifically, not a generic income comparison that assumes a whole years trading and doesn't take account of other personal income.

**Jeremiah@RHJAccountants** · 15 March 2012, 14:01

As an accountant i agree with the above.

The take home pay of 80% is a general comparison based on you being a basic rate tax payer.

It does not take into account your other personal income from other sources for example Rental income, interest and dividends from other companies.

So as i and other accountants have said call a few accountants and ask them if they will do a income comparison which is specific to you.

Hope that helps

**Fred Bloggs** · 15 March 2012, 15:27

If you go Ltd, shop around for accountants, SJD are very expensive, I think.

Advice needed on whether to go Limited for a 3 month contract