Contracting, expenses and tax

Author
Discussion

TheGreatSoprendo

Original Poster:

5,286 posts

248 months

Wednesday 29th July 2015
quotequote all
Having been made redundant recently, I may have an opportunity of a 3 month contracting role. The issue with it is that as it's approx a 3 hour journey from where I live, to make it work I'd need to stay over during the week and travel home on weekends.

As it's a contract role paying a day rate, the recruitment agent is suggesting I could set up a limited company and offset the cost of the accommodation against tax. Having always been a permanent employee in the past I have no idea of how this would work or the legalities of it, so any advise/experiences would really help me.

bucksmanuk

2,311 posts

169 months

Wednesday 29th July 2015
quotequote all
A limited company - for 3 months?
I wouldn’t do it, look into umbrella companies, although you will be taxed more.
If you need more information, then PM me.

UpTheIron

3,992 posts

267 months

Wednesday 29th July 2015
quotequote all
If you think this will be your only client as a contractor (either via Ltd or Umbrella) then you will not be able to claim expenses as the client will not be classed as a temporary workplace.

If you intend to have multiple contracts / clients over a longer period then you will be able to offset these expenses. That still doesn't make it free though, just less expensive to you personally.

Happy to help answer any questions here or via PM. I've 15+ years experience as a contractor. I'd also recommend spending a few hours over at contractoruk.com

Eric Mc

121,769 posts

264 months

Wednesday 29th July 2015
quotequote all
This "suggesting" by agencies or employers of setting up limited companies at the drop of a hat is getting out of hand.

They should just take you on as on employee on a three month short term contract

UpTheIron

3,992 posts

267 months

Wednesday 29th July 2015
quotequote all
Eric Mc said:
They should just take you on as on employee on a three month short term contract
To some extent I agree. I do know of some agencies who will do this. Most however will push new wannabe contractors to their favoured Umbrella (for a healthy commission). Many umbrella's will lead their new employee down a path of claiming expenses and allowances they are often not eligible for, and something that the recent expenses consultation is looking to stop... and may affectany genuine small businesses too.

Eric Mc

121,769 posts

264 months

Wednesday 29th July 2015
quotequote all
UpTheIron said:
To some extent I agree. I do know of some agencies who will do this. Most however will push new wannabe contractors to their favoured Umbrella (for a healthy commission). Many umbrella's will lead their new employee down a path of claiming expenses and allowances they are often not eligible for, and something that the recent expenses consultation is looking to stop... and may affectany genuine small businesses too.
Yes, it's the abusers of tax rules who ruin it for those operating legitimately.

sideways sid

1,371 posts

214 months

Wednesday 29th July 2015
quotequote all
OP, running a LtdCo is dependent partially on your future aspirations.

As you haven't mentioned anything about wanting to be a contractor, I assume you aspire to be an employee. If you expect to be offered acceptable employment to start in 3 months time, it is probably not worth the hassle to start a LtdCo.

An umbrella company offers you virtually none of the benefits of employment, and virtually none of the benefits of having your own LtdCo, but for three months - and in the absence of a fixed-term employment contract - might be your best option.

And yes, in either case, you can reduce your tax bill by offsetting legitimate business expenses, but for a three month contract, your accountancy bill may exceed the tax-saving anyway.

Eric Mc

121,769 posts

264 months

Wednesday 29th July 2015
quotequote all
And HMRC are now looking VERY closely at removing these expenses for contractors. I think the writing is on the wall for all this nonsense and it is beginning to look like hiring people as employees - whether full time or part time - will be the only sensible option before long.

theboss

6,878 posts

218 months

Wednesday 29th July 2015
quotequote all
UpTheIron said:
If you think this will be your only client as a contractor (either via Ltd or Umbrella) then you will not be able to claim expenses as the client will not be classed as a temporary workplace.

If you intend to have multiple contracts / clients over a longer period then you will be able to offset these expenses. That still doesn't make it free though, just less expensive to you personally.

Happy to help answer any questions here or via PM. I've 15+ years experience as a contractor. I'd also recommend spending a few hours over at contractoruk.com
You can claim travel expenses to any temporary workplace whether it's a sole client or not, providing you don't intend to be there for more than 2 years. Once you have reason (such as a contract offer which you accept) which would take you past the 2 year mark you have to stop claiming. If it were as simple as you suggest then all the OP need do is "intend" to take on more clients.

theboss

6,878 posts

218 months

Wednesday 29th July 2015
quotequote all
Eric Mc said:
And HMRC are now looking VERY closely at removing these expenses for contractors. I think the writing is on the wall for all this nonsense and it is beginning to look like hiring people as employees - whether full time or part time - will be the only sensible option before long.
It will be interesting to see which way it goes... Either everyone will accept "under SDC" contracts, stop claiming expenses and in the process effectively declare themselves inside IR35... Or the whole supply chain (clients, agents and contractors) will have to get savvy and think more carefully about terms and conditions.

in the past I have fought hard to dictate my own terms of engagement but you're up against agencies which couldn't give a flying fk about the contract or the reality of working practices and you have to genuinely be prepared to walk away from a decent engagement or approach the client directly and tell them how it is. There's a possibility the new rules might actually improve this situation.

Guvernator

13,103 posts

164 months

Wednesday 29th July 2015
quotequote all
Eric Mc said:
And HMRC are now looking VERY closely at removing these expenses for contractors. I think the writing is on the wall for all this nonsense and it is beginning to look like hiring people as employees - whether full time or part time - will be the only sensible option before long.
Interested to now why you seem so negative about this Eric. I know some people take the p*ss in terms of expenses etc but for many, contracting is a win-win for both the contractor and the contractee.

If people are willing to forego stability and certain permanent benefits for more flexibility and higher re-numeration and if employers are happier to employ contractors due to flexibility and budgeting purposes, surely HMRC should encourage\enable this to happen rather than trying to force people to work in only one way? The whole work ethic is changing but the archaic tax system that supports it isn't, not everyone wants to or is suitable to work as PAYE.

bucksmanuk

2,311 posts

169 months

Wednesday 29th July 2015
quotequote all
To be fair to Eric - I don't think he is per se. its George Osborne chasing after people who are abusing the system.
there will be people at HMRC nursing hard-ons at the thought of catching up with all those nasty contractors who have been using the system to their advantage.

like BBC presenters going through limited companies, despite working for the Beeb for 5 years plus.
a friend of mine has been contract at the same company in the same job for 6 years- this is taking the p!ss.

All i do is claim petrol, accountancy fees, professional subs, and pay myself minimum wage, and the quarterly dividends trick. My current total tax take is 26%, and with the new changes i am going to "lose" £5k a year in tax. i have only ever done a maximum of 12 months anywhere.
i also cashed in my career, my job security (such as it is in engineering), and any chance of serious training.
i could also arrive at work tomorrow and be out by 8 am. with no reasoning given what so ever, and none expected.
all its made me do is realise i have to genuinely work for myself, not the halfway house I do now.

anonymous-user

53 months

Thursday 30th July 2015
quotequote all
Maybe UK tax rules are wrong, for example in Norway all employees can claim their cost of home to work against tax, currently where I live I can make a nominal claim, if the UK really want people off culture of benefits shouldn't everything be done to encourage people like the OP to take a 3 month position.

Eric Mc

121,769 posts

264 months

Thursday 30th July 2015
quotequote all
If there weren't so many discrepancies between the way employees and the self-employed/limited company directors/shareholders are taxed and, most importantly of all, the way they are charged NI, then a lot of these subterfuge techniques would simply go away.

In reality, it's the NI rules that are the big drivers for this - especially the Employer's NI charge.