Umbrella contractor considering going Ltd Co?

jimmythegent

Hi All,

Apologies if this is in the wrong forum, I wasn't sure between this and the "Cutting Tax" but figure as the primary reason for considering this is to boost my income that this was the best place for it

I'm currently working as an Umbrella contractor. I am conracted to a client by my (Engineering) Recruitment Agency and I log my hours and expenses with, and am paid by an Umbrealla company. For tax calculations I am considered a PAYE employee of the umbrella company. I have considered going Ltd Co for a while given the financial benefits, however the extra effort of doing my own tax returns etc haven't been worth the benefits in my opinion so I've been happy staying as Umbrella.

However, my Umbrella company recently informed me that they offer a fully inclusive service for Ltd Co contractors. They kindly did a projection for me based on my currently hourly rate and hours worked and in that example, my take home was 20% more than it is currently so it;s gotten me very tempted. I'm aware that month to month the actual amount may change but before I take the plunge I want to understand things more.

The umbrella company have offered this service for a £100+VAT setup fee, and then a £100+VAT a month fee (this increases to £125+VAT a month if you want to include Public Liability and Employers Ins). My understanding is this covers everything so there would be no extra hassle for me (I value my time and being stress free more than saving say £50 a month on fees) but there are a few questions I have:

I log my hours and expenses onto an online portal, which would continue if I used this same company. Therefore I presume those are the records needed for them to do tax returns?

I've been told by a fellow Ltd Co contractor that there are 4 things involved with Ltd Co tax:

1. Corporate Tax Returns
2. VAT Returns (This only applies over £70,000 I;ve read and I don't earn that much, so is this an issue?)
3. Each April a payroll year end needs to be done?
4. Personal Tax return, needs to be done end of January...whats involved with this or would the above be contained with the 'all inclusive' service?

Finally, is there anyone on here who is Ltd Co with an Umbrella company who can give the good and the bad points?

Many thanks, Tax just confises me which is why I leave it to the experts!

asajj

May be ask here

http://forums.moneysavingexpert.com/forumdisplay.php?f=22

Also if you use the search, there are some topics, one is below

https://forums.moneysavingexpert.com/discussion/5173855

InsideInsurance

Speak to an accountancy that specialises in contracting too. I pay £1,000 +VAT per year for payroll (2 employees), annual company and personal returns and VAT. Plus any companies house charges at cost, think is £20 a year or something minimal. Set up was done for free by them

VAT is normally beneficial for you to register for even if you are below the requirement as your clients are presumably VAT registered so your day rate will be £200 or £200+VAT and it makes no difference to them. Assuming your expenses are minimal you join the flat rate scheme and so dont have to mess about reclaiming VAT but instead give a flat rate percentage to HMRC leaving you with a couple of percent extra profit.

The portal should generate an invoice and thats what you'd need along with your companies bank statements, receipts for expenses etc.

£25/month for EL and PL is a con, it is the PI that you need for your clients and where the cost is. EL is not required by you as you have no non-family employees and PL for an office based contractor really should be under £30 per year when bolted onto a PI policy.

Some of these giant companies are very liberal when it comes to saying what you can deduct as expenses etc but leave you on your own if HMRC come knocking.

The issue with going Ltd is IR35 and the liabilities that may materialise if you do the normal of low salary, high dividends but HMRC decide in 5 years time that you were inside IR35 and so back tax is due plus fines.

jimmythegent

asajj wrote: »

May be ask here



Also if you use the search, there are some topics, one is below

Thanks, I will post my question on that forum.

InsideInsurance wrote: »

Speak to an accountancy that specialises in contracting too. I pay £1,000 +VAT per year for payroll (2 employees), annual company and personal returns and VAT. Plus any companies house charges at cost, think is £20 a year or something minimal. Set up was done for free by them

Thanks, looking at the figures this umbrella company would charge about £1200+VAT so I'll look around. I;ve been with them a while and have been pleased with them though so in some ways I don't mind paying a little extra.

The portal should generate an invoice and thats what you'd need along with your companies bank statements, receipts for expenses etc.

So can I ask if YOU have to do anything with regards to tax returns etc? Or with it all on file so to speak the accountancy firm does that for you?

£25/month for EL and PL is a con, it is the PI that you need for your clients and where the cost is. EL is not required by you as you have no non-family employees and PL for an office based contractor really should be under £30 per year when bolted onto a PI policy.

My bad, I think it's just £25 on top of the startup fee for this, so a one time fee of £25.

Some of these giant companies are very liberal when it comes to saying what you can deduct as expenses etc but leave you on your own if HMRC come knocking.

The issue with going Ltd is IR35 and the liabilities that may materialise if you do the normal of low salary, high dividends but HMRC decide in 5 years time that you were inside IR35 and so back tax is due plus fines.

This is my biggest concern tbh, and the main reason I'm holding back from making a decision but thanks for your input.

Ebe_Scrooge

Speaking from personal experience, I'd go Ltd. every time. Myself and my colleagues are all working on a contract basis, some of us chose to set up our own Ltd companies, some went with an umbrella. My friend is paying £95 a month to the umbrella company for their services, I pay my accountant £560 a year - I'm sure you can do the sums yourself

If you're a one-man-band it's very easy. I just keep a spreadsheet of income and expenses, send these off to my accountant once a year, he sends my accounts off to HMRC, then I get a bill for the tax. It's pretty easy to estimate what the tax bill is going to be, so I just put money aside each month into a separate account, then it's ready for when the bill arrives.

If you can find a decent accountant to look after the accounts for you, then I would say a Ltd. Co. is very easy option.

Just to add - you don't have to have an accountant, you can do everything yourself. But personally, for what he charges I think it's worth it to make sure everything is done by the books, and I can sleep easy without expecting a knock on the door from the tax-man

jimmythegent

InsideInsurance wrote: »

£25/month for EL and PL is a con, it is the PI that you need for your clients and where the cost is. EL is not required by you as you have no non-family employees and PL for an office based contractor really should be under £30 per year when bolted onto a PI policy.

Can you give me a link or direction on where to get quotes? So far the only quote I've managed to get is £46 a month (or £464 a yr), so base don that the £25+VAT option of theirs seems reasonable.

InsideInsurance

jimmythegent wrote: »

So can I ask if YOU have to do anything with regards to tax returns etc? Or with it all on file so to speak the accountancy firm does that for you?

My bad, I think it's just £25 on top of the startup fee for this, so a one time fee of £25.

This is my biggest concern tbh, and the main reason I'm holding back from making a decision but thanks for your input.

I simply send my accountants a monthly spreadsheet, any capital purchases' invoices and bank statements for the company.

They send back the completed quarterly VAT, annual company and personal tax returns and a few other company papers. I have to "check", sign and return them back to them.

£30 for EL & PL is ok, depending on who its with, but its by no means a real deal. As said, its PI that is expensive but because most buy it as a package they arent really aware of the split between the coverages. The quality of PI varies significantly too and it may be worth ensuring you dont get a policy with big enough loopholes for a bus to be driven sideways through it.

IR35, in my non-professional opinion, is a boogy man. According to people who's opinion I trust only a tiny number of contractors have been successfully pursued under it and they all worked for the MOD and required high level security clearance making the substitution clause in their contracts a joke. That said, its still worth taking a few additional actions to try and ensure you arent first on the list if HMRC do start trying to enforce it more.

One of the guys at my current clients has been contracting for almost a decade with an umbrella that only pays you NMW and gives you ~90% of the rest of your day rate back to you as a "loan". The asset of the due loan is then transferred to a trust with you as the trustee, so basically you decide if the money ever has to be repaid and in the meantime you are getting over 90% of your money tax free.

I think these kinds of schemes along with the off shore ones, film industry etc are more likely to be tackled than Ltd's who are ultimately still paying their corporation tax etc.

InsideInsurance

jimmythegent wrote: »

Can you give me a link or direction on where to get quotes? So far the only quote I've managed to get is £46 a month (or £464 a yr), so base don that the £25+VAT option of theirs seems reasonable.

I buy my PI/ PL via Hiscox and the PI is £362.52 and the PL is £36.25. Hiscox is a higher end provider and their premiums are rarely the lowest.

I know my last client used to charge £20 net for the PL on their contractor policies, IPT would be 6% but the broker selling it would have their margin on top of it but again, as PI is the real risk its where the money is and where the brokers margin will be.

Buying standalone PL is different, insurers/ brokers etc will want to ensure they get their return on their efforts etc and so you will find such a policy

W1lk0

As in IT contractor I pay £80 plus VAT per month for my accountant to prepare accounts for my limited company and my personal income tax return. I know others who play slightly less than that.