A few contractor newbie question re tax and IR35

[stek]

It's possible you know.

1. Get a sub in and get some of the fee, or,
2. One is remote so he can spend his evenings and weekends working on it, or,
3. They are both part-time.

Yeah I know!

OP tho is baling out two weeks into his first contract, that's not good.

[Wanderer]

However, I have a couple of initial questions. Barclays suggested to me today to terminate my Company Secretary appointment if they don't do anything as they are no longer required for a limited company.

I agree with Barclays on this one, no need for a secretary anymore. The exception to this is if you want you mum to be able to manage the company in the event that you are unable. If you are single then it's probably not such a problem.

However, this person is my mother and I was thinking of assigning some shares to her and paying her dividends to optimise the tax. It's a very similar situation to this thread.

It is possible to pay salary to your mum (if she actually does work for the company) or allocate shares and pay dividends (no work required) but remember that the money will belong to your mum, NOT to you. Colluding with your mum to do things like giving the income back to you in cash for you to spend on beer and hookers, putting it in a bank account then giving you the ATM card/PIN or buying a car that she gives to you to use are all a big no no, though I'm sure people do tax evasion stuff like that.

Also remember that if you get boomed then the dividends could put your mum into the higher rate tax bracket and complicate her tax affairs which she will not thank you for.

If you want to give your mum some money to support her financially then it's probably allowable but you should ask a tax advisor for advice about the S660a settlements rules.

Buy your accountant friend a few pints and run some ideas past them as a sounding board then go and get yourself a proper tax advisor accountant. Friends and business don't mix in my experience.

However, I understand I can reduce my earnings considerably 'on paper' by offsetting expenses against the turnover. I am going to be renting a property in London for the purpose of the contract while keeping my owned property in Surrey unoccupied. Does this mean I can offset all rent and utility bills against the tax? Is this what they call a 'tax deductible expense'?

If your turnover is 100k then I wouldn't think you can reduce your earnings "considerably". I'd struggle to get my expenses over about 5% of turnover but I guess if you are renting digs in London then you're going to be spending a fair bit more. Don't go thinking that everything you put on expenses is "free" though. All you get back is the 20-40% tax on the expenses so at the end of the day it's still mostly coming out of your own pocket.

Re: IR35, If it's a borderline case then I'd get insurance against an investigation then forget all about it and then get on with your business. IR35 is there for the deterrent value more than anything.

Get VAT registered and check out the Flat rate scheme.

Thanks for any help with my noob questions. A lot in there, but hopefully it will get me on the road to contracting freedom!

At least you've given a few references to show you know how to do a search and to backup your noob questions, so welcome.

[northernladuk]

Just to make a point, I am very savvy when it comes to numbers and logic and figuring things out - I am very meticulous and thorough and I think I would be able to do my accounts myself (I am using FreeAgent), picking up everything as I go along. That said, is it possible to use a contractor accountant like Nixon Williams to manage my accounts in tandem with me so that I can keep a close eye on my accounts in FreeAgent and provide them with a login to run my accounts that way?

You say you can run your own accounts and then you say...

I guess I'll ditch the idea of claiming expenses from previous tax years. However, I bought a car a few days before the end of my last accounting year (May 2011). It's a second car and I will be using it for business travel. I bought it on finance. Would I be able to put all the monthly payments on the business (it's a large amount, over £700 per month) if I state that the car is for business purposes only. Is there anything I can do about the initial payment (£2500 deposit) that was paid a few days before the end of my last accounting year. Also, can items like work suits be put on the business?

This is exactly why you cannot run your own accounts. Being maticulous about numbers is one thing. Not understanding basic points of what you can and can't claim are another. Your car is available to you for personal use as well so does not meet the Wholly and Exclusively test so you would have to pay benefit in kind tax on it which goes against the new price and emissions.

You cannot put suits against expenses, it is not wholly and exclusive to your works needs

A good accountant will answer these questions for you but some basic research would help. There are a raft of guides on the right about what you can and can't claim. Read them very carefully but still get an accountant.

[Guest22]

Thanks again for the awesome replies.

Just to clarify, I have two cars - so it would be reasonable to say that one is for business (and no, it's not a green eco-friendly car at all), and the other is for personal use, no?

I'm leaning towards certainly getting an accountant such as Nixon Williams, and then I can ask them regarding details like this.

There are suits I would never wear outside of work, but maybe this is still pushing it a bit.

Regarding my mum, I want to give her back about £40k for helping me out over the years (uni, property purchase deposits, etc.), so any money I give her in the form of salary or dividends would indeed be wholly hers, certainly for the first £40k. But, again, as has been suggested, this is one for the accountant regarding the S660a rules.

Also, I'm not bailing out of my current contract two weeks in. It will be more like 7 weeks in, out of a 13-week contract.

I understand 60-80% of expenses are still coming out of my pocket, but rent is something I've been paying anyway for my previous permanent roles, so it's no different really in that respect, but at least I can get some of it back through the business. I have a fixed home address in Surrey, so the only reason I rent in London is for jobs, whether permanent or contract.

I've looked into PCG and their Startup membership requires me to pay for company formation, which I don't need, but also requires me to take their PI insurance if I use their accountancy package, which would mean I'd have to cancel my Hiscox PI insurance and also use one of their suggested accountants, either DANBRO or SJD Accountancy... which I'm sure are both fine, but I've heard Nixon Williams' name enough now to probably want to go with them. That leaves me with going with PCG for the PEI insurance (inc. IR35 cover) only, which, at £120 per year, is considerably cheaper than Qdos, which is at least three times that amount.

That said, is there any significant gain in using Qdos over PCG for this, or am I missing something completely here? PCG membership also seems to come with a whole host of other goodies.

Also, what would I be looking at cost-wise with Nixon Williams? I can see PCG offer accounting at £96.50 per month. I suspect Nixon Williams, when I call them, will give me a much higher figure...?

The agency have put pressure on me to sign the 12-month contract by Friday, so I may have to stretch this a little longer (till Monday) to give me time to get my PCG membership in place, or whatever IR35 cover I decide to go with (I assume this has to be in place before I sign a contract?).

And I best get to bed - the interview for the VP permie role is in the morning and I'm planning on buying a new suit for it beforehand and getting a haircut - can these go against the business???

Thanks again for all the great help - I can see this website being a great resource for me in the future, and I plan on reading the guides on the right in the next day or two regarding stuff I've not already read up on.

[LisaContractorUmbrella]

Thanks again for the awesome replies.

Just to clarify, I have two cars - so it would be reasonable to say that one is for business (and no, it's not a green eco-friendly car at all), and the other is for personal use, no?

No it would not be OK - as NLUK said you cannot prove that the car would be exclusively for business use and therefore there is an immediate duality of purpose

I'm leaning towards certainly getting an accountant such as Nixon Williams, and then I can ask them regarding details like this. You should definitely get a good accountant

There are suits I would never wear outside of work, but maybe this is still pushing it a bit. There was a legal case some years back whereby a barrister was told that her robes could not be expensed as there was a duality of purpose - essentially, although she wouldn't, she could wear them outside the courtroom. The only clothing as allowed is protective workwear

Regarding my mum, I want to give her back about £40k for helping me out over the years (uni, property purchase deposits, etc.), so any money I give her in the form of salary or dividends would indeed be wholly hers, certainly for the first £40k. But, again, as has been suggested, this is one for the accountant regarding the S660a rules. Again why you need a good accountant

Also, I'm not bailing out of my current contract two weeks in. It will be more like 7 weeks in, out of a 13-week contract.

I understand 60-80% of expenses are still coming out of my pocket, but rent is something I've been paying anyway for my previous permanent roles, so it's no different really in that respect, but at least I can get some of it back through the business. I have a fixed home address in Surrey, so the only reason I rent in London is for jobs, whether permanent or contract. Do you rent your house in Surrey out when you are living in London?

I've looked into PCG and their Startup membership requires me to pay for company formation, which I don't need, but also requires me to take their PI insurance if I use their accountancy package, which would mean I'd have to cancel my Hiscox PI insurance and also use one of their suggested accountants, either DANBRO or SJD Accountancy... which I'm sure are both fine, but I've heard Nixon Williams' name enough now to probably want to go with them. That leaves me with going with PCG for the PEI insurance (inc. IR35 cover) only, which, at £120 per year, is considerably cheaper than Qdos, which is at least three times that amount.

That said, is there any significant gain in using Qdos over PCG for this, or am I missing something completely here? PCG membership also seems to come with a whole host of other goodies.

Also, what would I be looking at cost-wise with Nixon Williams? I can see PCG offer accounting at £96.50 per month. I suspect Nixon Williams, when I call them, will give me a much higher figure...? Why not phone NW, Danbro and SJD and see which one you prefer

The agency have put pressure on me to sign the 12-month contract by Friday, so I may have to stretch this a little longer (till Monday) to give me time to get my PCG membership in place, or whatever IR35 cover I decide to go with (I assume this has to be in place before I sign a contract?).

And I best get to bed - the interview for the VP permie role is in the morning and I'm planning on buying a new suit for it beforehand and getting a haircut - can these go against the business???

Thanks again for all the great help - I can see this website being a great resource for me in the future, and I plan on reading the guides on the right in the next day or two regarding stuff I've not already read up on.

HTH

[psychocandy]

Wow, thanks for all the amazing advice.

So, I'll leave my mum out of the equation and drop her as Company Secretary. That's one problem solved.

Just to clarify, I haven't started my 12-month contract yet - that starts next month. However, I'm two weeks into a 3-month contract, but I intend to give my 7 days' notice on it prematurely before I start my 12-month contract.

I have already got PI insurance with Hiscox, but I can cancel it within 7 days if there is another option. Is Qdos a better option to get both my PI insurance and IR35 cover then? I spoke to the agent today about IR35 compliance for my 12-month contract and they were genuinely convincing saying their contracts had been tried and tested in court and proven to be IR35-compliant. That said, if Qdos do an IR35 review for free with their insurance, that might be worth doing.

Just to make a point, I am very savvy when it comes to numbers and logic and figuring things out - I am very meticulous and thorough and I think I would be able to do my accounts myself (I am using FreeAgent), picking up everything as I go along. That said, is it possible to use a contractor accountant like Nixon Williams to manage my accounts in tandem with me so that I can keep a close eye on my accounts in FreeAgent and provide them with a login to run my accounts that way?

Also, to clarify, my Limited company from 2004 has been dormant since incorporation. It was originally to be used for another purpose (see X-treem.net), but hasn't ever traded although has remained active.

Also, regarding insurance, etc., I'm a little confused on the recommendations. PCG is a not-for-profit trade organisation that offers IR35 cover. Qdos seems to be more a consultancy/advisory service that offers both PI insurance and IR35 cover. Given I already have PI insurance with Hiscox, would it worth me just joining PCG for he IR35 cover that comes with it, as it comes with lots of other good stuff by the looks of it and runs more as a free service/charity rather than a business? Or should I ditch Hiscox and go with Qdos for everything? What factors should I consider?

Also, I've been recommended by a friend Choice Premier, a friend who is very conversant with the contracting world. Does anyone have any experience of them?

Another friend of mine also recommended Nixon Williams. As mentioned above, is it possible to use an accountant like these as well as maintain my own accounts through FreeAgent which they can use through a provided login?

I guess I'll ditch the idea of claiming expenses from previous tax years. However, I bought a car a few days before the end of my last accounting year (May 2011). It's a second car and I will be using it for business travel. I bought it on finance. Would I be able to put all the monthly payments on the business (it's a large amount, over £700 per month) if I state that the car is for business purposes only. Is there anything I can do about the initial payment (£2500 deposit) that was paid a few days before the end of my last accounting year. Also, can items like work suits be put on the business?

I guess what I'm trying to do here, is get a feel for what works and what doesn't, as, as you can probably see, I'm very new to contracting, but I'm just feeling my way through the tax minefield now and working out the dos and don'ts.

I really appreciate the help from everyone, this is a fantastic place to learn.

Bailing on contract early already? Expect flak from people here in this forum....

To be honest, I know you say you want to do the accounts yourself but I reckon you need a proper one mate. Not having a go like but I dont think you've got much understanding of accounts etc. Example, it aint as easy as paying for a car through the business like that, theres personal tax liability etc to consider.

An accountant will be able to advise to make sure you aint breaking the law and will advise on best way to do things and probably save you money. As someone said Nixon Williams are good.

[oscarose]

I'm planning on buying a new suit for it beforehand

I believe you can now pick up a new suit from Sainsbury’s for around £30 is their ‘basics’ range, although I’ve heard the buttons tend to fall off fairly quickly but at least mum can fix that for you.

[TheFaQQer]

I'm a software developer

interview for the VP permie role is in the morning

15

[Guest22]

OK, thanks for all your help again, guys. I spent much of yesterday enquiring about all of this and spoke to PCG, Nixon Williams, DANBRO and SJD on the phone (all while organising a house purchase completion!). PCG seems not to be all it's cracked up to be. The IR35 cover doesn't actually cover any tax liabilities arising out of a tax investigation, it only covers the professional fees. This explains the significant different in price between PCG and Qdos. On that basis, I have taken up cover with Qdos.

Also, PCG membership locks you in for 12 months. So, I have decided to go with DANBRO as they are in the process of implementing an online system using FreeAgent which works very well for me as that is the package I am going to be using for my books, especially as it comes with my Barclays Business account. Also, Nixon Williams told me they are averse to FreeAgent and SJD kept me on hold for significant lengths of time while I got passed around from person to person before I could actually speak to someone. Also, PCG wasn't sure why their monthly fee for using DANBRO is £16.50 more expensive than going to DANBRO directly. So, I have skipped PCG for now and just taken up Qdos' TLC35 cover and DANBRO's standard package for accountancy.

Hopefully, this should stand me in good stead for my current contract and 12-month contract starting next month now.

oscarose & TheFaQQer: unnecessary trolling.

Thanks for everyone's help so far, and, although there a some contrasting views on here, this forum has been very helpful so far for me in my first foray into contracting.

[SueEllen]

OK, thanks for all your help again, guys. I spent much of yesterday enquiring about all of this and spoke to PCG, Nixon Williams, DANBRO and SJD on the phone (all while organising a house purchase completion!)..... <SNIP>

You really don't have a clue do you.

Have you tried using the search functionality on this board? Have you read the Guides under CUK Navigation?

BTW oscarose & TheFaQQer were just pointing out some inconsistencies in your very long winded posts. People on this board aren't here to hold your hand.