contracting help/advice
Discussion
Hi
Have just accepted my first contracting role & have been informed that I can accept the role in either PAYE, Umbrella or Ltd comp status.
Salary is above the VAT threshold.
What are the pros & cons for each? Costs?
I have heard that you can claim £30 a day for subsistance without any receipts & also your full commute is reclaimable on Business miles. Your home BBand (that would be used for work at times), part heating & electric, can you also claim say a new work suit as a tax deducatable expense?
With the VAT what items can you claim the vat back on? Is it simply anything which you can prove was used for you carrying out your duties?
Next cars. My car is getting on a bit now 12 years old so am thinking I should change it - so again if I buy new I can claim the VAT off? I estimate the commute to be 80miles a day so say 18k a year would be purely for me doing my work and then say maybe 2-3k for pleasure. Is it more sensible to have a PCP/lease hire car than an outright purchase? Does it have to be a brand new car?
As you can see Im pretty naive on all this and would welcome any help/advice.
Many thanks.
Sorry for the report - I put this initially onto Pie & Piston!!
Have just accepted my first contracting role & have been informed that I can accept the role in either PAYE, Umbrella or Ltd comp status.
Salary is above the VAT threshold.
What are the pros & cons for each? Costs?
I have heard that you can claim £30 a day for subsistance without any receipts & also your full commute is reclaimable on Business miles. Your home BBand (that would be used for work at times), part heating & electric, can you also claim say a new work suit as a tax deducatable expense?
With the VAT what items can you claim the vat back on? Is it simply anything which you can prove was used for you carrying out your duties?
Next cars. My car is getting on a bit now 12 years old so am thinking I should change it - so again if I buy new I can claim the VAT off? I estimate the commute to be 80miles a day so say 18k a year would be purely for me doing my work and then say maybe 2-3k for pleasure. Is it more sensible to have a PCP/lease hire car than an outright purchase? Does it have to be a brand new car?
As you can see Im pretty naive on all this and would welcome any help/advice.
Many thanks.
Sorry for the report - I put this initially onto Pie & Piston!!
Welshbeef said:
Hi
Have just accepted my first contracting role & have been informed that I can accept the role in either PAYE, Umbrella or Ltd comp status.
Salary is above the VAT threshold.
What are the pros & cons for each? Costs?
I have heard that you can claim £30 a day for subsistance without any receipts & also your full commute is reclaimable on Business miles. Your home BBand (that would be used for work at times), part heating & electric, can you also claim say a new work suit as a tax deducatable expense?
With the VAT what items can you claim the vat back on? Is it simply anything which you can prove was used for you carrying out your duties?
Next cars. My car is getting on a bit now 12 years old so am thinking I should change it - so again if I buy new I can claim the VAT off? I estimate the commute to be 80miles a day so say 18k a year would be purely for me doing my work and then say maybe 2-3k for pleasure. Is it more sensible to have a PCP/lease hire car than an outright purchase? Does it have to be a brand new car?
As you can see Im pretty naive on all this and would welcome any help/advice.
Many thanks.
Sorry for the report - I put this initially onto Pie & Piston!!
Going thru an umbrella is significantly easier - but following on from changes in the law in april 07, you will pay tax as an employee (PAYE) on the entire billed sum. For example if your on £30/hr you will pay about 10k more tax per year through an umbrella.Have just accepted my first contracting role & have been informed that I can accept the role in either PAYE, Umbrella or Ltd comp status.
Salary is above the VAT threshold.
What are the pros & cons for each? Costs?
I have heard that you can claim £30 a day for subsistance without any receipts & also your full commute is reclaimable on Business miles. Your home BBand (that would be used for work at times), part heating & electric, can you also claim say a new work suit as a tax deducatable expense?
With the VAT what items can you claim the vat back on? Is it simply anything which you can prove was used for you carrying out your duties?
Next cars. My car is getting on a bit now 12 years old so am thinking I should change it - so again if I buy new I can claim the VAT off? I estimate the commute to be 80miles a day so say 18k a year would be purely for me doing my work and then say maybe 2-3k for pleasure. Is it more sensible to have a PCP/lease hire car than an outright purchase? Does it have to be a brand new car?
As you can see Im pretty naive on all this and would welcome any help/advice.
Many thanks.
Sorry for the report - I put this initially onto Pie & Piston!!
and unless they've changed it you can only claim milege to site and up to £5 for lunch, for which you must provide reciept.
Going thru a ltd company will allow you to pay yourself a basic wage thru PAYE and take a proportion of the rest of the company income as a dividend.
Going down this route is financially advantageous, but there are pitfalls, most notable of which is IR35.
IR35 is basically a set of rules (very vague rules) that point to your employment status. If you pay yourself through a ltd company and it is subsequently decided that your contract, or working practices puts you inside IR35 the your will be required to pay the difference in tax (ie the 10k/year on 30/hr).
The first thing that jumps out of your email is your attitude. To be a professional contractor you must change your outlook. Your company is there not as a way of avoiding tax, but because you are a genuine business and this structure is the correct one for your business practices. You must present yourself, once onsite as a contractor not an employee. This means resisting being part of the administration of the company. A good example of this is timesheets. Most client will require you to fill in a timesheet for their internal accounting purposes, but this timesheet must be in no way linked to approval of your invoices. if it is it's a pointer to being inside IR35.
You need to get an accountant and ask them what you can and cannot submnit as expenses. You cant, as a rule, claim anything without a receipt, and as far as buying cars then its far more complex than you make out. If you company buys the car then you are using it as a company car and must pay tax accordingly. basically your better off claiming the 40p/mile.
So now, as a reward for reading this far, some decent advice.
go to www.contractoruk.com where you will find a link for first time contractors. Also seriously consider joining the Professinal Contractors Group (PCG) which will provide you with IR35 friendly contracts if you are going direct to a client, or will review contracts provided by agencies.
Fully understand the car aspect as I would have to lease the car and then pay company car tax myself on that same car. So yes the £0.40 per mile is the best option.
Yes I will have to fill out time sheets, I do not have any holiday pay or bonus. It is a daily rate and a 6m contract. I will not receive any benefits the employees of the company would i.e. no comp car, no bonus, no sick leave, no holiday pay.
Reading that website you need to work with the IR and its a case by case decision if its IR35 or not... which is kind of annoying as I need to know if I need to set up a company or not
Yes I will have to fill out time sheets, I do not have any holiday pay or bonus. It is a daily rate and a 6m contract. I will not receive any benefits the employees of the company would i.e. no comp car, no bonus, no sick leave, no holiday pay.
Reading that website you need to work with the IR and its a case by case decision if its IR35 or not... which is kind of annoying as I need to know if I need to set up a company or not
Welshbeef said:
Fully understand the car aspect as I would have to lease the car and then pay company car tax myself on that same car. So yes the £0.40 per mile is the best option.
Yes I will have to fill out time sheets, I do not have any holiday pay or bonus. It is a daily rate and a 6m contract. I will not receive any benefits the employees of the company would i.e. no comp car, no bonus, no sick leave, no holiday pay.
Reading that website you need to work with the IR and its a case by case decision if its IR35 or not... which is kind of annoying as I need to know if I need to set up a company or not
the fact you wont get sick pay or holiday pay is neither here nor there to HMRC. Your IR35 status relates to your contract and working practices.Yes I will have to fill out time sheets, I do not have any holiday pay or bonus. It is a daily rate and a 6m contract. I will not receive any benefits the employees of the company would i.e. no comp car, no bonus, no sick leave, no holiday pay.
Reading that website you need to work with the IR and its a case by case decision if its IR35 or not... which is kind of annoying as I need to know if I need to set up a company or not
Are you going thru and agency or direct - if direct do you physically have a signed contract, if so where did you get it?
It's up to you to make an assessment of your IR35 status, ie you can start a company tomorrow and start trading. HMRC may at some point in the future may challenge your assessment of your IR35 status.
It is possible to get IR35 insurance - but the insurance company will want to see you contract before agreeing to cover you.
If you go Ltd you will also need public liability insurance and professional indemnity insurance.
I'm in a very similar situation to the op.
I've accepted that for a first contract I am happy to work via an umbrella, because the hassle factor is too much.
Working under an umbrella you are effectively an employee of the umbrella and you therefore do not need to worry about IR35. You can claim expenses via the agency, these depend on things like number of hours worked, whether you left work before 7am (in which case you can claim an extra £5) etc. I went with Parasol, because they are one of the biggest (I think the biggest).
If you go down the limited company option you need to be very sure that the contract is IR35 compliant or take the hit and that you behave as if you were a contractor and not a perm employee. As previous poster pointed out, several specialist websites available for advice including
wwww.contractoruk.com - Lots of general advice on contracting.
www.pcg.org.uk - Professional contractors group who have been in the forefront of fighting IR35 legislation.
www.contractorcalculator.co.uk - Can get an idea of what the financial differences are in working via ltd company or umbrella.
Also worth talking to a view umbrella companies who will give you a quote based on your contract details.
I've accepted that for a first contract I am happy to work via an umbrella, because the hassle factor is too much.
Working under an umbrella you are effectively an employee of the umbrella and you therefore do not need to worry about IR35. You can claim expenses via the agency, these depend on things like number of hours worked, whether you left work before 7am (in which case you can claim an extra £5) etc. I went with Parasol, because they are one of the biggest (I think the biggest).
If you go down the limited company option you need to be very sure that the contract is IR35 compliant or take the hit and that you behave as if you were a contractor and not a perm employee. As previous poster pointed out, several specialist websites available for advice including
wwww.contractoruk.com - Lots of general advice on contracting.
www.pcg.org.uk - Professional contractors group who have been in the forefront of fighting IR35 legislation.
www.contractorcalculator.co.uk - Can get an idea of what the financial differences are in working via ltd company or umbrella.
Also worth talking to a view umbrella companies who will give you a quote based on your contract details.
smithsi said:
I've accepted that for a first contract I am happy to work via an umbrella, because the hassle factor is too much.
Let me guess, the Umbrella Co told you running a Ltd Company was a load of hassle? It's not...the biggest headache is keeping track of expenses/receipts - and this is no different if you use a brolly.smithsi said:
Working under an umbrella you are effectively an employee of the umbrella and you therefore do not need to worry about IR35.
You will pay MORE tax than if you used your own Ltd Company and were IR35 caught.smithsi said:
You can claim expenses via the agency, these depend on things like number of hours worked, whether you left work before 7am (in which case you can claim an extra £5) etc.
No, you can only claim expenses where you have incurred them.smithsi said:
If you go down the limited company option you need to be very sure that the contract is IR35 compliant
It is more efficient (in terms of net take home) to run a Ltd Co inside IR35 than it is to use an Umbrella.smithsi said:
Also worth talking to a view umbrella companies who will give you a quote based on your contract details.
Any Umbrella that promises a higher take home, or claims special "Revenue approved" dispensation is full of s**t. The only difference in net from one Umbrella to another will be their fee.Edited by UpTheIron on Tuesday 29th July 19:17
Welshbeef said:
I have heard that you can claim £30 a day for subsistance without any receipts
No. You can only claim allowable expenses that you actually incur.Welshbeef said:
your full commute is reclaimable on Business miles.
Only if it is to a TEMPORARY work location.Welshbeef said:
Your home BBand (that would be used for work at times), part heating & electric
An expense is only tax deductible if it is for a genuine business purpose. For example, if you claim your home broadband, can you demonstrate it is ONLY used for business purposes. If not, you will incur (at least a proportion) of the cost as a BiK.Welshbeef said:
can you also claim say a new work suit as a tax deducatable expense?
No. Suits and similar work wear is "dual purpose" and therefore is not an allowable expense.Welshbeef said:
Paper contracts means nothing from an IR35 perspective, it is the reality of the situation that matters.
If you are a genuine external contractor you will have no employee benefits (like parking spaces, subsidised canteen, free gym etc), carry genuine commercial risk - ie you might not get paid if you don't deliver and the method of delivery is mainly up to you, and your company can provide any worker (not just you) to complete the task and this right is genuine.
The fact of the matter is about 90% of IT contractors dodging IR35 are living in a dream world where they would love to think they carry more commercial risk than they do, they would never be allow to exercise their 'substitution' clause and they are an internal employee manager's beeatch with the method of delivery being dictated, plus they will get paid every day they turn up - not at delivery milestones.
If you are a genuine external contractor you will have no employee benefits (like parking spaces, subsidised canteen, free gym etc), carry genuine commercial risk - ie you might not get paid if you don't deliver and the method of delivery is mainly up to you, and your company can provide any worker (not just you) to complete the task and this right is genuine.
The fact of the matter is about 90% of IT contractors dodging IR35 are living in a dream world where they would love to think they carry more commercial risk than they do, they would never be allow to exercise their 'substitution' clause and they are an internal employee manager's beeatch with the method of delivery being dictated, plus they will get paid every day they turn up - not at delivery milestones.
Hi Ade
Well put.
Despite what was said earlier, the Revenue criteria for ascertaining "employment" or "self-employment" status are not that much of a grey area at all. These types of conumdrums have been in existence from a legal and tax point of view for well over a century and obviously pre-date the advent of IR35 in the 1990s. There are lots of legal and tax cases concerning this issue going right back to Victorian times.
So, it is not really a "grey area". However, that doesn't mean that individual cases are not tricky to define and the Revenue, if they get round to it, will ascertain status based on the individual circumstances of each particular case.
Well put.
Despite what was said earlier, the Revenue criteria for ascertaining "employment" or "self-employment" status are not that much of a grey area at all. These types of conumdrums have been in existence from a legal and tax point of view for well over a century and obviously pre-date the advent of IR35 in the 1990s. There are lots of legal and tax cases concerning this issue going right back to Victorian times.
So, it is not really a "grey area". However, that doesn't mean that individual cases are not tricky to define and the Revenue, if they get round to it, will ascertain status based on the individual circumstances of each particular case.
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