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Moving from sole trader to umbrella payment or LTD status

scrub
Posts: 175 Forumite


in Cutting tax
I had to be self-employed for a contract from from Jan 2011. I finished there in March 2013 and haven't worked since.
I'm now starting a role this week where they want me either to use an umbrella payment company or be a ltd company.
I'm happy to use an umbrella company but not sure if LTD is a better option.
Also, I've done my tax return for 2012 - 2013 and it's ready to submit. If I move to an umbrella company, does that mean I'm no longer a sole trader and can wind up my taxes. I'd like to incorporate this year's tax info so far as I've not earned anyting into last year's return so I can finish it all and hopefully reduce my payments.
Thanks!
I'm now starting a role this week where they want me either to use an umbrella payment company or be a ltd company.
I'm happy to use an umbrella company but not sure if LTD is a better option.
Also, I've done my tax return for 2012 - 2013 and it's ready to submit. If I move to an umbrella company, does that mean I'm no longer a sole trader and can wind up my taxes. I'd like to incorporate this year's tax info so far as I've not earned anyting into last year's return so I can finish it all and hopefully reduce my payments.
Thanks!
0
Comments
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Sole trader first - if you have ceased trading, there is a box on the return - box 7 of the self-assessment section - for date of cessation. In order to leave self-assessment, I then write a letter to HMRC explaining that the person is no longer trading, is not a higher rate taxpayer and is not likely to be. So please remove the person from self-assessment, such requests are granted 80% or so of the time.
Limited company - this is worth doing from the point of view of saving tax and Ni above about £15k of profits before tax. An issue you have not mentioned - but which is likely to be relevant from the nature of your post - is IR35 or "false self-employment".
You need the contract to be robust in its legal wording and its operation. I can send you links on both IR35 and running a limited company if you send me a private message.Hideous Muddles from Right Charlies0 -
Before you get too starry eyed about an umbrella company, let Wikipedia remind you:
"- A dispensation does not benefit a contractor.
- A dispensation does not mean less paperwork for a contractor.
- A dispensation does not affect what a contractor can claim as a legitimate business expense.
An accountant you get on with and limited status may well suit you better financially.
May I suggest a bit more research?0 -
Thanks. The thing is, the role potentially may go permanent so the contract may not last that long - 8 - 12 weeks. A friend has recommended me an umbrella company. Would it be a hassle switching from sole trader to LTD for two or three months?
The role is a straight IT contractor type role so no expenses or anything like that. Any expenses such as travel to other offices for meetings, I would claim back through expenses with the company.0 -
A dormant limited company is no hassle. Just key in about 7 zeros at Companies House, and file an annual return, each year. £13 per year cost.
But put one contract, sale, or other trading activity through the limited company and suddenly - if you want to do things properly - you need to file Companies Act compliant accounts, corporation tax returns and so on. My standard annual fee for the one person band limited company package is £850 plus VAT. This is below average for the market, though you probably don't need chunks of the standard package such as PAYE and VAT so you'd pay less.
IR35 needs carefully looking at in my view BEFORE you sign anything:
1. "The role may go permanent" sounds like an employee talking.
2. "Claim back through expenses" sounds like an employee unless you're claiming through you're own company not the client.
Now you may be thinking, who cares about IR35 on a three month contract? Which is fair enough, except that one client I have who started a six month contract in 2006 is still there. He did things properly on the six month contract, which is a good thing as his IR35 risk - the extra tax HMRC would seek if they brought a status enquiry - is around £70k now.
So although it's a bit of a pain for what might be an 8 month role, for peace of mind it's worth looking into in my view.Hideous Muddles from Right Charlies0 -
You may want to look at the guides on contractoruk.com regarding umbrella vs. limited.0
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A dormant limited company is no hassle. Just key in about 7 zeros at Companies House, and file an annual return, each year. £13 per year cost.
But put one contract, sale, or other trading activity through the limited company and suddenly - if you want to do things properly - you need to file Companies Act compliant accounts, corporation tax returns and so on. My standard annual fee for the one person band limited company package is £850 plus VAT. This is below average for the market, though you probably don't need chunks of the standard package such as PAYE and VAT so you'd pay less.
IR35 needs carefully looking at in my view BEFORE you sign anything:
1. "The role may go permanent" sounds like an employee talking.
2. "Claim back through expenses" sounds like an employee unless you're claiming through you're own company not the client.
Now you may be thinking, who cares about IR35 on a three month contract? Which is fair enough, except that one client I have who started a six month contract in 2006 is still there. He did things properly on the six month contract, which is a good thing as his IR35 risk - the extra tax HMRC would seek if they brought a status enquiry - is around £70k now.
So although it's a bit of a pain for what might be an 8 month role, for peace of mind it's worth looking into in my view.
The company is looking for a permanent replacement but needed someone to start straight away before the current staff member leaves. In the meantime, they will begin the recruitment process which I will be able to apply for. I want to go permanent and they want someone permanent but I may not get the job in the end if they find someone else. So, it's not one of those never-ending IT contracts that they just renew. It's to cover an emergency handover. This is why LTD seems a lot of hassle.0
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