Ir 35
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happyandcontented
Posts: 2,768 Forumite
in Cutting tax
If working as a contractor and now just deemed to be inside IR35 what are the pros and cons of retaining a Ltd Company?
There is the option of PAYE or Ltd Co retention.
Any thoughts?
There is the option of PAYE or Ltd Co retention.
Any thoughts?
0
Comments
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I’d say it largely depends on how long you expect to be in the current contract and whether or not you expect future gigs to be inside or outside. Of course, we wait to see if the public sector reforms will roll out to the private sector at the budget.0
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happyandcontented wrote: »what are the pros and cons of retaining a Ltd Company?
Far too many pros and cons to list here, and many would probably be irrelevant to your circumstances. Just a few that may mean ltd continues to be best for you:-
1. Does your company already have cash reserves on which you'd pay personal tax if you dissolved it and withdrew the money (plus potentially liquidator fees to do so).
2. How much of your income do you intend to pay into your pension?
3. You still have the 5% general expense allowance to get tax relief on things like accountancy costs, mobile phone, equipment, etc that wouldn't be available if employed or via an umbrella.
4. IR35 sometimes brings the company buying a car and providing fuel as a viable option.
5. Potential VAT profits, although now much less, there's still a small amount of profit to be made having your own ltd.
I'd suggest you have a long hard talk with your accountant who is best placed to advise you on your circumstances. Even if caught by IR35, you can mitigate/minimise the consequences to leave you in a better position than just giving up your company and going umbrella.0 -
Bear in mind that IR35 doesn't go away just because you have a limited company. HMRC have the final say, and if they deem that you are actually an employee then that's what you are.
As Pennywise said, speak to your accountant. If you don't have an accountant, then many will give you 1/2 an hour of their time for free in the hope that you will give them your business, so go and talk - and if you decide to go down the ltd route, you'll need one anyway.No longer a spouse, or trailing, but MSE won't allow me to change my username...0 -
trailingspouse wrote: »Bear in mind that IR35 doesn't go away just because you have a limited company. HMRC have the final say, and if they deem that you are actually an employee then that's what you are.
I think you may have misunderstood the OP. They already have a Ltd company. They are asking if its worth keeping it (or presumably, moving over to an umbrella or going direct as a PAYE employee where IR35 becomes irrelevant).0 -
You're absolutely right Cycling. Silly me.TheCyclingProgrammer wrote: »I think you may have misunderstood the OP. They already have a Ltd company. They are asking if its worth keeping it (or presumably, moving over to an umbrella or going direct as a PAYE employee where IR35 becomes irrelevant).No longer a spouse, or trailing, but MSE won't allow me to change my username...0 -
Far too many pros and cons to list here, and many would probably be irrelevant to your circumstances. Just a few that may mean ltd continues to be best for you:-
1. Does your company already have cash reserves on which you'd pay personal tax if you dissolved it and withdrew the money (plus potentially liquidator fees to do so).
Yes, it does.
2. How much of your income do you intend to pay into your pension?
Into the spouse's pension (Director) as much as possible
3. You still have the 5% general expense allowance to get tax relief on things like accountancy costs, mobile phone, equipment, etc that wouldn't be available if employed or via an umbrella.
Thanks, that is useful to know
4. IR35 sometimes brings the company buying a car and providing fuel as a viable option.
N/A to us
5. Potential VAT profits, although now much less, there's still a small amount of profit to be made having your own ltd.
Yes, a small advantage.
I'd suggest you have a long hard talk with your accountant who is best placed to advise you on your circumstances. Even if caught by IR35, you can mitigate/minimise the consequences to leave you in a better position than just giving up your company and going umbrella.
That is what we thought due to the above issues, but our accountant is saying that PAYE is the way to go even if it is not to their advantage. So, we are confused! As we had all but decided to keep the Ltd Co.0 -
just to be clear, when you say "keep the Ltd" do you mean:
a) the contract would be performed by the Ltd Co and it would be paid for the work, or
b) you'd do the work outside the Ltd co but keep the company dormant for future use?
As pennywise says, and as long as your client allows, it is not automatically better to do inside IR35 work via an umbrella or as PAYE.0 -
The Ltd company was set up when the contract was outside IR 35, now it ( the same contract on renewal) has been deemed inside. It is possible, but not probable, that another contract elsewhere would be inside.
So, the contract will still be performed by the Ltd company, but it has been suggested that PAYE or Umbrella is better than retaining the Ltd Co.0 -
Happy, is this a contract for the public sector? If so, are they basing their decision on the HMRC tool?
You say you're doing the same role, but it's now considered inside IR35 after a review upon renewal. What made them change their mind? If they think they got it wrong initially, you might need to do a retrospective adjustment and become PAYE for the initial contract.
I've just finished a six month contract for the public sector, the first 3 within IR35 and then outside. I was paid via our limited company for the whole six months. The contract status changed to outside upon the 3 month renewal point.
The reason being, nobody actually did a IR35 test prior to me starting work. To be safe, they just assumed everybody was inside IR35. When they renewed it I pointed out it should be outside of IR35 as a) I wasn't gapping a permanent role, b) my work was a stand alone project, mainly working at home and c) I was not under day to day supervision. They then did the HMRC test, and it agreed with my viewpoint.0 -
It is the public sector, but, as each contract comes up for renewal in my area, everyone has been put inside IR35 as the company will not risk HMRC saying otherwise. As a result, everyone is looking to move contracts and the team has been decimated. No room for manoeuvre though apparently. The HMRC test is borderline or inconclusive and they are erring on the side of extreme caution.0
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