Moving from umbrella to ltd on renewal

[workstation]

I have been using an umbrella company on a contract via an agency with a public sector client at 400pd for over a year. I used an umbrella because I was worried about IR35 and because I wasn't sure contracting was for me.

The end client has offered me a renewal (the end of the current contract is the end of this month). I have now decided that I like the contractor lifestyle and that given that the client is open to substitution and subcontracting (other contractors on site have actually substituted), if the contract includes this there shouldn't be any IR35 problem, and so I want to move over to using my limited company (which I have already set up but which is currently dormant).

I have not actually seen the contract between the umbrella and the agency (this seems wrong to me, although I am not technically a party to it), but I suppose I need to ask the agent to contract with my limited company on terms that are outside IR35 when the current contract with the umbrella expires. Two questions:

1) The end client is making all limited company contractors take the business entity tests and report the results. I realize the points do not really matter from a legal perspective, only in preventing investigation, but does the fact that I am using an umbrella now mean that I will have worked for the end client "on PAYE employment terms" and hence lose 15 points under the "previous PAYE" test? It seems ambiguous.

2) What should I actually do now? I think I should speak to the agent saying I want to change, get them to send me a proposed contract, and get it reviewed. They seem to be fairly clueless so I am not sure the best way to approach this.

If necessary I can of course find another end client but would rather not do so at the moment or indeed have any avoidable bench time.

Thanks.

[TheCyclingProgrammer]

You haven't worked for the end client on PAYE terms, you worked for the umbrella company. Not the same thing.

It's a bit odd that the end client would insist on you taking the HMRC BETs - I don't see how your IR35 status is any of their concern (are they in the public sector?) - however on the positive side it sounds like they are at least aware of IR35 and should be cooperative when it comes to ensuring your working practices outside. The fact they are also open to letting other contractors use substitutes would also seem to back this up.

So it sounds to me like you should go for it. You just need to make sure your contract with the agency is IR35 friendly. Get it reviewed. Find a good contractor specialist accountant to help you get up and running. Make sure you're aware of your responsibilities running a company. Make sure you understand how expenses work and the 24 month rule (to be honest I'm not sure how you apply the 24 month rule if you change from umbrella to Ltd do check this too if it might affect you).

Good luck.

[AptoAccounting]

Hello,

In response to your questions:

1) You've not worked on PAYE terms for the end client. You have been an employee of the umbrella company. In any event, as you point out, the questionnaire doesn't cover the 3 key areas that have been argued in the law courts.

2) I think your suggestion sounds fine. In my experience I've found that agencies are pretty savvy when it comes to contracts for freelance contractors. However, you should remember that simply having an 'IR35 friendly contract' in place is not sufficient if it is a sham contract. The terms of the contract must genuinely reflect the reality of the situation in practice.

Good luck!

Alex

[northernladuk]

2) What should I actually do now? I think I should speak to the agent saying I want to change, get them to send me a proposed contract, and get it reviewed. They seem to be fairly clueless so I am not sure the best way to approach this.

They send you a contract, you send it off to B&C, QDOS et al and they review. It's not rocket science.

Make sure you are aware of all the finer details of running a LTD that weren't a concern whilst with the brolly e.g. PI/PL insurance, 24 month rule, a pretty good understanding of IR35, your obligations to your company as a director etc. Plenty of guides on all these here.

EDIT : Doh, just spotted TCP covered most of these but anyway, read all the guides you can on here. There is a lot to learn.

One important note is that you will have to pay back all the expenses you have claimed as this is your one and only assignment with the brolly and therefore becomes your permanent site so no expenses under the temporary workplace rules are allowed. 24 month rule will kick in very soon so understand it.

[TheCyclingProgrammer]

Further to my earlier post, as I wasn't sure before but the 24 month rule will still kick in regardless if whether you change employer from a brolly to YourCo as it's a personal tax relief that applies directly to you (you have to claim the allowances on your tax return).

[speling bee]

Further to my earlier post, as I wasn't sure before but the 24 month rule will still kick in regardless if whether you change employer from a brolly to YourCo as it's a personal tax relief that applies directly to you (you have to claim the allowances on your tax return).

Although I think (someone could perhaps kindly confirm) that the 10,000 miles (for which you can claim 45p per mile before the 25p per mile rate kicks in) resets when you change employer.

[northernladuk]

Although I think (someone could perhaps kindly confirm) that the 10,000 miles (for which you can claim 45p per mile before the 25p per mile rate kicks in) resets when you change employer.

Bit early for you to be winding the newbies up isn't it?

Hope Cojak has had her morning coffee fix before reading this else you are going to get the red text treatment!

[speling bee]

Bit early for you to be winding the newbies up isn't it?

Hope Cojak has had her morning coffee fix before reading this else you are going to get the red text treatment!

No, really. I think it is true, because the 10,000 miles limit is related to your employment, not your place of work (as is the case for the 24 month rule).

Claiming business mileage if you work for different employers - Mileage Allowance Claims

Different employers

If you are employed by two or more entirely separate companies you can claim travel expenses from both of them, up to 10,000 miles per employer. To qualify for such claims, the employers must be completely un-associated and independent.

It is important to remember that you must keep complete and organised records of your travel expenses for each separate company that you undertake travel on behalf of. The companies may have their own systems of recording such details, either via a computer system or through traditional paper work.

Timely and organised submission of your expenses will enable you to reclaim them as soon as possible and avoid you being out of pocket at the end of each month.

[northernladuk]

Well this goes totally against everything we normally advise and against the example HMRC give in London where the employee changes to another company just down the road. 24 months is all about location. Will read the link later though.

[Contreras]

One important note is that you will have to pay tax on all the expenses you have claimed as this is your one and only assignment with the brolly and therefore becomes your permanent site ...

FTFY.

24 month rule will kick in very soon so understand it.

Very soon as in 24 months time?

Or very soon as in immediately?