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    • mgp1000
    • By mgp1000 16th Oct 17, 6:08 PM
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    mgp1000
    Contract work and Limited company
    • #1
    • 16th Oct 17, 6:08 PM
    Contract work and Limited company 16th Oct 17 at 6:08 PM
    Hi,
    My wife was recently offered a job which involves her contracting herself out to a company. She has contacted In Touch Accounting to handle her accounts, and she has been advised to set up a limited company for this purpose. They have also advised her that it would save me some tax if I become a partner in her limited company, since I earn less than £40k (i think).
    The contract is for 3 months, with a possibility of extension since the whole project is a long term one.
    Does anyone have an idea about setting up a limited company for the purpose of contracting yourself out?
    If she decides, in th future, to stop contract work and takes on a permanent role , how does this affect her (and me)? Can she simply shut down the company?

    If anyone has any guidance regarding this, it would be a great help!

    Thanks in advance
Page 1
    • phill99
    • By phill99 16th Oct 17, 7:47 PM
    • 7,986 Posts
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    phill99
    • #2
    • 16th Oct 17, 7:47 PM
    • #2
    • 16th Oct 17, 7:47 PM
    I think there is an element of untruth in what they are saying. I would take advice of a second accountancy firm. Setting up a Ltd Co for just a three month project is extremely excessive. This in its own right has costs, compliance issues and then if the project doesn't continue, the company will need to be dissolved.


    I would only set it up after the three months if there was a long term contract offered.


    Self employment may be the most cost effective (ie £0 cost) and the tax position in a three month contract will be identical.
    Eat vegetables and fear no creditors, rather than eat duck and hide.
    • tacpot12
    • By tacpot12 16th Oct 17, 7:59 PM
    • 738 Posts
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    tacpot12
    • #3
    • 16th Oct 17, 7:59 PM
    • #3
    • 16th Oct 17, 7:59 PM
    Hi, I've contracted in this way on two previous occasions. You wouldn't be a partner in her company, you would be a shareholder.

    Setting up a limited company for this purpose is very easy, and costs very little; £10 with quickformations.co.uk, who I've used in the past.

    Your wife needs to read up on IR35, and decide whether the contract being offered will be caught by the IR35 rules, to make sure she knows how much she needs to pay herself. (What isn't paid out of the company as expenses is paid out as dividends to the shareholders.)

    If the contract is caught by IR35, she will need to pay out her income mostly as PAYE and NI, which will mean that there will be minimal dividends to pay to you and very limited savings in tax.

    If the contact is outside the IR35 rules, she can pay herself a minimal salary, just enough to pay enough NI to count towards the State Pension, and take the rest as dividends, split with yourself to save tax.

    If in the future she wants to stop contracting and take a permanent job, she just winds the company up. You then cease to be a shareholder. You might also consider becoming a director or company secretary depending on whether you want to take responsibility for the operation of the company. I would avoid becoming a director or company secretary if you can.

    From your point of view, the biggest impact is that you will have to complete a Self-Assessment for Income Tax (unless the dividends you receive are below the personal dividend allowance).
    • tacpot12
    • By tacpot12 16th Oct 17, 8:07 PM
    • 738 Posts
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    tacpot12
    • #4
    • 16th Oct 17, 8:07 PM
    • #4
    • 16th Oct 17, 8:07 PM
    Setting up a Ltd Co for just a three month project is extremely excessive.
    While I agree with the point being made, it is very unlikely that your wife will have the option to be self-employed (i.e. working as a sole trader); it is very common for agencies to insist that the contract can only be agreed with a limited company, not sole traders.

    It is very unlikely that your wife will not be renewed, and if she isn't she should keep the company going until she has secured a permanent role.
    • 00ec25
    • By 00ec25 16th Oct 17, 10:38 PM
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    00ec25
    • #5
    • 16th Oct 17, 10:38 PM
    • #5
    • 16th Oct 17, 10:38 PM
    a company only makes sense where it will be her sole source of income and her income is close (or over) the higher rate tax threshold.

    if she is caught by IR35 and has to pay herself via PAYE through her own company then the company exists purely to safeguard the agency and is of little benefit to her

    if she is not caught by IR35 and thus has the option to take most of her income via dividends, the company has to pay corporation tax (@ 19%) on its profits before it can work out how much money remains to be paid out as a dividend. Dividends are taxed at 7.5% so that means "her" income has already "lost" more than the basic rate of tax anyway as it will be reduced by >20% in net terms

    as another poster says, get a second opinion from a different accountants (and preferably a quick calculation using her expected figures to confirm her position)
    • Pennywise
    • By Pennywise 17th Oct 17, 7:52 AM
    • 9,334 Posts
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    Pennywise
    • #6
    • 17th Oct 17, 7:52 AM
    • #6
    • 17th Oct 17, 7:52 AM
    As an accountant specialising in limited company "contractors", if you were consulting me, I'd say to go via an umbrella company instead if there's little certainty of it extending past 3 months. There's not really much tax reduction by using a ltd for just 3 months after you've factored in the accountancy fees, insurances, IR35 contract review fees and other costs and the time/effort to learn about limited company accounting, etc. Umbrella fees are virtually the same as accountancy fees too. Trouble with the bigger accountancy firms is that they'll offer what seem to be reasonable monthly fees, but most have a minimum 12 month contract, so you could end up paying 12 months of fees for just 3 months contracting - check their T&Cs. I'd say that you should only go down the limited route if you are more than 50% certain that you'll be contracting long term. I've seen far too many limiteds close down after just 3 or 6 months after a lot of time and money has been spent, who'd have been better off just doing the umbrella route. It's easy enough to leave the umbrella and form your own limited once you have more certainty it's long term. Another aspect is her hourly/daily rate - I've also seen too many companies set up for pretty low rates, some as low as £20 per hour which just makes the tax differentials far too small to warrant it.
    • motorguy
    • By motorguy 19th Oct 17, 4:25 PM
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    motorguy
    • #7
    • 19th Oct 17, 4:25 PM
    • #7
    • 19th Oct 17, 4:25 PM
    While I agree with the point being made, it is very unlikely that your wife will have the option to be self-employed (i.e. working as a sole trader); it is very common for agencies to insist that the contract can only be agreed with a limited company, not sole traders.

    It is very unlikely that your wife will not be renewed, and if she isn't she should keep the company going until she has secured a permanent role.
    Originally posted by tacpot12
    Correct in the sense she wouldnt be "self employed", however she would go through an umbrella company if she wasnt using a limited company.
    You are not special. You are not a beautiful and unique snowflake.
    • motorguy
    • By motorguy 19th Oct 17, 4:26 PM
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    motorguy
    • #8
    • 19th Oct 17, 4:26 PM
    • #8
    • 19th Oct 17, 4:26 PM
    If i were being cynical i would be thinking that the accountancy firm are recommending the option that allows them to generate accountancy charges...
    You are not special. You are not a beautiful and unique snowflake.
    • antrobus
    • By antrobus 19th Oct 17, 7:40 PM
    • 15,275 Posts
    • 21,791 Thanks
    antrobus
    • #9
    • 19th Oct 17, 7:40 PM
    • #9
    • 19th Oct 17, 7:40 PM
    Hi,
    My wife was recently offered a job which involves her contracting herself out to a company. She has contacted In Touch Accounting to handle her accounts, and she has been advised to set up a limited company for this purpose....
    Originally posted by mgp1000
    A quick look at their website reveals that they charge 105 pounds per month plus VAT. What the ....

    1260 quid a year for ltd co for a contractor! Go find a local accountant and halve that price.
    • antrobus
    • By antrobus 19th Oct 17, 7:42 PM
    • 15,275 Posts
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    antrobus
    As an accountant specialising in limited company "contractors", if you were consulting me, I'd say to go via an umbrella company instead if there's little certainty of it extending past 3 months. ...
    Originally posted by Pennywise
    Good point.

    I bet you'd be happy with 1,260 a year.
    • happyandcontented
    • By happyandcontented 19th Oct 17, 7:48 PM
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    happyandcontented
    A quick look at their website reveals that they charge 105 pounds per month plus VAT. What the ....

    1260 quid a year for ltd co for a contractor! Go find a local accountant and halve that price.
    Originally posted by antrobus
    Many companies who employ contractors insist that only certain agents are used. They have a list that you have to choose from as they are "approved" and vetted by the companies, so using a local Accountant is often not an option. The figure above is actually quite low for such companies.
    • motorguy
    • By motorguy 19th Oct 17, 10:39 PM
    • 15,671 Posts
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    motorguy
    Many companies who employ contractors insist that only certain agents are used. They have a list that you have to choose from as they are "approved" and vetted by the companies, so using a local Accountant is often not an option. The figure above is actually quite low for such companies.
    Originally posted by happyandcontented
    I think you're a little confused.

    Companies usually engage you via an agency. You may then chose to engage with the agency via a LTD Co or an Umbrella.

    If you have a LTD Co, you will usually have an accountant to do your company accounts.

    A company wont engage with your accountant.
    You are not special. You are not a beautiful and unique snowflake.
    • motorguy
    • By motorguy 19th Oct 17, 10:43 PM
    • 15,671 Posts
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    motorguy
    A quick look at their website reveals that they charge 105 pounds per month plus VAT. What the ....

    1260 quid a year for ltd co for a contractor! Go find a local accountant and halve that price.
    Originally posted by antrobus
    I'm paying around that for my accountancy fees for my LTD Co.

    Self employed accounts could be around half that, but £100ish a month doesnt sound far away.

    EDIT: Just checked and it seems £100ish a month is about right

    http://forums.contractoruk.com/accounting-legal/117189-accounting-fees-too-much.html
    Last edited by motorguy; 19-10-2017 at 10:52 PM.
    You are not special. You are not a beautiful and unique snowflake.
    • happyandcontented
    • By happyandcontented 20th Oct 17, 10:55 AM
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    happyandcontented
    I think you're a little confused.

    Companies usually engage you via an agency. You may then chose to engage with the agency via a LTD Co or an Umbrella.

    If you have a LTD Co, you will usually have an accountant to do your company accounts.

    A company wont engage with your accountant.
    Originally posted by motorguy
    No, my OH recently became a contractor for a big name company, they only accept contractors via another big name recruitment type company and only allow those contractors to use an accountancy firm from their approved list, all of whom charge in that region for their services.
    • Pennywise
    • By Pennywise 20th Oct 17, 11:35 AM
    • 9,334 Posts
    • 16,962 Thanks
    Pennywise
    Good point.

    I bet you'd be happy with 1,260 a year.
    Originally posted by antrobus
    The reason I'm not keen on short term contractors is that they're a PITA to set up and close down, train them in what's allowable, what's not, set up payroll and then close down, set up VAT and then close down. Even for £1,260 for a full year (which I wouldn't charge if it was only trading for 3 months), it's just not worth it for the time I'd spend. I can earn more than that doing quality/worthwhile work for long term clients.
    • Pennywise
    • By Pennywise 20th Oct 17, 11:38 AM
    • 9,334 Posts
    • 16,962 Thanks
    Pennywise
    No, my OH recently became a contractor for a big name company, they only accept contractors via another big name recruitment type company and only allow those contractors to use an accountancy firm from their approved list, all of whom charge in that region for their services.
    Originally posted by happyandcontented
    But that will be for umbrella/managed service companies. Not for those who own and operate their own limited company.

    If you contract via your own limited company, your "big name company" employer/client won't have any contact with your accountant and has no say in who you use - they won't even know who your accountant is. You'll invoice them via your limited company and they'll pay into your limited company bank account. Your accountant isn't in the loop at all and is completely irrelevant to your employer/client.
    • happyandcontented
    • By happyandcontented 21st Oct 17, 12:48 PM
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    happyandcontented
    But that will be for umbrella/managed service companies. Not for those who own and operate their own limited company.

    If you contract via your own limited company, your "big name company" employer/client won't have any contact with your accountant and has no say in who you use - they won't even know who your accountant is. You'll invoice them via your limited company and they'll pay into your limited company bank account. Your accountant isn't in the loop at all and is completely irrelevant to your employer/client.
    Originally posted by Pennywise
    This for a Ltd company, he could have gone either route (umbrella/Ltd) but the rules of engagement were the same.
    • Aquamania
    • By Aquamania 21st Oct 17, 3:15 PM
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    Aquamania
    This for a Ltd company, he could have gone either route (umbrella/Ltd) but the rules of engagement were the same.
    Originally posted by happyandcontented
    Who is this "big name company" and how will they control which accountant, if any, another limited company may elect to use?
    • happyandcontented
    • By happyandcontented 21st Oct 17, 4:26 PM
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    happyandcontented
    Who is this "big name company" and how will they control which accountant, if any, another limited company may elect to use?
    Originally posted by Aquamania
    I don't really want to disclose that, but they wouldn't progress the contactor application until a choice had been made from their approved list.
    • motorguy
    • By motorguy 21st Oct 17, 6:12 PM
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    motorguy
    No, my OH recently became a contractor for a big name company, they only accept contractors via another big name recruitment type company and only allow those contractors to use an accountancy firm from their approved list, all of whom charge in that region for their services.
    Originally posted by happyandcontented
    And you're still confused.

    No-one is saying the company would engage with the O/P via their accountants.

    The amount quoted is for accountancy fees, not as an agency fee.
    You are not special. You are not a beautiful and unique snowflake.
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