Contracting - Setting up Limited Company

scaredofdebt

Hi.
I was made redundant at the end of last year and have managed to get a short-term contract.
The recruitment company have put me in touch with a company who can take care of tax for me as I won't be on PAYE.
They've offered me two options, umbrella company or limited company - of course they're charging me for this, can I do it myself?  I've had a look and it seems quite easy to set up a limited company and I expect the accounting won't be hard as all I am doing is getting paid with minimal expenses.  I've not been advised if I am covered by IR35 or not, start date is in a couple of weeks.
The company is charging £40 a week for "accounting".
I'm aware contractors can do various things to reduce tax but I've always been on PAYE, is this legal?
The money isn't huge, £250 a day, 3-4 month contract.
Cheers for any advice,
David

Marcon

scaredofdebt said:

Hi.
I was made redundant at the end of last year and have managed to get a short-term contract.
The recruitment company have put me in touch with a company who can take care of tax for me as I won't be on PAYE.
They've offered me two options, umbrella company or limited company - of course they're charging me for this, can I do it myself?  I've had a look and it seems quite easy to set up a limited company and I expect the accounting won't be hard as all I am doing is getting paid with minimal expenses.  I've not been advised if I am covered by IR35 or not, start date is in a couple of weeks.
The company is charging £40 a week for "accounting".
I'm aware contractors can do various things to reduce tax but I've always been on PAYE, is this legal?
The money isn't huge, £250 a day, 3-4 month contract.
Cheers for any advice,
David

A contractor can be interpreted in a number of ways. There is nothing illegal about a contractor being on PAYE, but if they are they are employees of the entity to which they are providing their services.

Setting up and running a limited company is neither expensive nor complicated (see https://www.gov.uk/browse/business if you've not yet done so), but it is worth an initial meeting with an accountant to ensure you get things off on the right footing.

Elliott.T123

As a recruitment consultant myself but one with no involvement in this I can give you some knowledge although long term contractors / accountants may be able to give better advice.

My input would be that it is heavily dependent on what your longer term plans are. If you are thinking of staying contract and becoming a career contractor or at least for the foreseeable future then definitely go ahead and set up a Ltd company. The setting up is quite easy and you can definitely do that yourself. There are a number of way of ensuring you are as tax efficient as possible when withdrawing the money from the company, nothing at all illegal about that, it is simply a case of being efficient. Obviously as with anything there are limits that go from efficiency and cross into illegal tax evasion.

The vast majority of people who have a Ltd company do opt for an accountant as while the day to day accounts may be fairly simple they don't want to deal with the annual accounts. You can find independent accountants who charge far less than £40 per week and will answer any questions you have and help with the tax efficiency side of things.

If your intention is to see out this 3-4 month contract and then go back into a "perm" PAYE role I would recommend the umbrella company, you wont receive as much upfront but it will be far easier and wont require you to submit Ltd Company accounts to HMRC in future.

scaredofdebt

Thanks - at this stage I am not sure if I will go down the contracting route or not, but I would like to do that longer term if I can get contracts, just depends on if there is work around or not.

Are annual accounts due at the end of January the following year as per Self Assessment?

deedee71

If the length of the contract is going beyond when IR35 status determination changes, you should be asking for that determination to be done now.  

The fact they aren't providing this just a few weeks before April is a big red flag.

Elliott.T123

Seconded what Dee said above, you should definitely get the IR35 determination prior to starting, my worry would be that if they haven't done one yet is it because they don't understand the rules around IR35 and will you lose out because of this.

Jonesy1977

The agency (and in fact more importantly the end engager) should complete the online HMRC CEST (check employment status for tax) online to determine in or out status.  There are exceptions for example if the end client has less than (at last check) 50 employees or turnover of £10m in which case you will be fine "limited".  I would personally go umbrella, this will effectively give you employed status and you will be taxed at source, it will significantly effect your day rate mainly due to employers NI being paid on your behalf and you being charged for this.  You will however be employed and furlough (god forbid) may be an option in the future.  You could go Limited, you can set this up yourself at minimal cost, but you will need an accountant, indemnity insurance and liability insurance at your own cost or you can be set up by an intermediary and you will pay them in a fee.  If you go limited them your next contract may be inside IR35 (if not already) at which point it is inevitable that you will need to go umbrella post April anyway as the rules change for the private sector (they already exist for the public sector).  

isplumm

Hi
As others have said I would ask them whether they consider the role inside IR35 - that will determine your decision over umbrella or limited - from my experience most companies are saying that contractors are inside IR35 - so you only route is umbrella.

Have a look at https://sjdaccountancy.com/resources/becoming-contractor
Mark

Sandtree

scaredofdebt said:

Are annual accounts due at the end of January the following year as per Self Assessment?

No, annual accounts are due within 9 months of the end of your companies financial year which is ordinarily based on when it came into being (though it is possible to adjust the dates).

How long is this initial contract for? If it goes into April I would have expected the client and agent to already be on top of IR35 changes and so would be dictating your engagement model options.  For those clients that havent finalised their IR35 position I would expect the initial contract to end before April. Note that IR35 exists today already just you self determine your status today and foot the bill for the consequences whereas from April liability at least partially transfers to the client and therefore they now will make their own determinations or make a blanket decision that they wont engage with contractors via Ltds etc.

directdebiter

As said above the agency needs to determine whether or not your contract is inside or outside IR35 and this will determine whether you go Limited or Umbrella. Also £40 per week for accountancy is too expensive for a contractor. You can get a decent contractor accountant for £80-£100 per month. You should defo do research before accepting anything. There is loads of info on IR35 here if it helps https://www.contractoruk.com/private_sector_ir35_reform