IT Contracting and IR35 ?
Discussion
May be venturing into the realms of contracting v soon (IT).
Has IR35 really killed the benifits of contracting or are there still loop holes?
Have read a lot on the matter and the guide lines on it are still very vague with regard to contracts failing IR35 or being inc and you getting hit with the extra tax.
Does anyone have any experience with contracs and IR35? Would be interested in some experiences of people already contracting and dealing with IR35.
ps. Where's Mosi when u need him ?
Cheers in advance.
Has IR35 really killed the benifits of contracting or are there still loop holes?
Have read a lot on the matter and the guide lines on it are still very vague with regard to contracts failing IR35 or being inc and you getting hit with the extra tax.
Does anyone have any experience with contracs and IR35? Would be interested in some experiences of people already contracting and dealing with IR35.
ps. Where's Mosi when u need him ?
Cheers in advance.
The plain truth is that relatively few people have been caught by IR35.
If you use an Accountant you need to have a contract whereby it could be argued that you are not subject to IR35 (otherwise they will have to prepare accounts on an IR35 basis or report you to whatever has taken over from NCIS if you disagree). As long as you have that contract in place you would be rather unlucky to be caught be an investigation.
There is a number of things that needs to be in the contract, ability to substitute someone else for you is one of the most important. Of course the contract is in fact bollox, you are employed in all but name, but following the legal loopholes reaps great dividends with IR35.
If you use an Accountant you need to have a contract whereby it could be argued that you are not subject to IR35 (otherwise they will have to prepare accounts on an IR35 basis or report you to whatever has taken over from NCIS if you disagree). As long as you have that contract in place you would be rather unlucky to be caught be an investigation.
There is a number of things that needs to be in the contract, ability to substitute someone else for you is one of the most important. Of course the contract is in fact bollox, you are employed in all but name, but following the legal loopholes reaps great dividends with IR35.
Also, the contract will always be superseded by actuality. Just becxause a contract states varios matters which ensure that IR35 should not be applicable, if the actual arrangements being operated are different to what the contact says, then IR35 may still apply.
There are a number of things to be aware of:
IR35 is an integral part of the Corporation Tax Self Assesment system. Therefore, the ENTIRE respnsibility for ensuring it is applied falls on you. Just because the Revenue have not "picked up" on the fact that IR35 might be applicable does not obviate you from your legal respnsibilities.
IR35 only applies to "intermediary" entities i.e limited companies or partnerships. Ir does not apply to individuals.
There are a number of things to be aware of:
IR35 is an integral part of the Corporation Tax Self Assesment system. Therefore, the ENTIRE respnsibility for ensuring it is applied falls on you. Just because the Revenue have not "picked up" on the fact that IR35 might be applicable does not obviate you from your legal respnsibilities.
IR35 only applies to "intermediary" entities i.e limited companies or partnerships. Ir does not apply to individuals.
Eric Mc said:
Also, the contract will always be superseded by actuality. Just becxause a contract states varios matters which ensure that IR35 should not be applicable, if the actual arrangements being operated are different to what the contact says, then IR35 may still apply.
Of course.
I was setting out what an Accountant needs in order to prepare accounts on a Non-IR35 basis. If the Inland Revenue happen to investigate that would be another matter entirely and they would put far more emphasis on what is actually happening rather than what is written in the contract.
I looked at my options when starting contracting and decided I was happier to sacrifice itro £20 a week and have a company like Brookson set up a composite company for me that to try and run my own limited company and try dodging IR35 and other bullets.
www.brookson.co.uk
www.brookson.co.uk
Nice one, cheers for the info. This kind of information is just what I need to enter the arena full of all the facts. Know for sure now i'll be entering the world of IT contracting (Application MSI Packaging)around March 2007 so I've a bit of time before my employer releases me to get even more info.
Think i'll be starting with an umbrella co (have had a few good recomandations)to take care of things and may if I find my feet quickly go for it with my own company ? Not really sure of all the pro's and cons between umbrella'ing or creating ur own company yet?
Think i'll be starting with an umbrella co (have had a few good recomandations)to take care of things and may if I find my feet quickly go for it with my own company ? Not really sure of all the pro's and cons between umbrella'ing or creating ur own company yet?
I've always been of the opinion that your own company and a good accountant is the way to go.
I suppose I've never really trusted composite companies because I don't fully understand how they work... and I see it as just another person taking a cut of my hard earned money.... and IIRC the IR are taking more than a passing interest in these companies at present.
Best thing to do before deciding which way to go is to speak to a good accountant who understands the needs of IT contractors.
I suppose I've never really trusted composite companies because I don't fully understand how they work... and I see it as just another person taking a cut of my hard earned money.... and IIRC the IR are taking more than a passing interest in these companies at present.
Best thing to do before deciding which way to go is to speak to a good accountant who understands the needs of IT contractors.
If my understanding is correct a compsite co is really a 3rd option to consider?
Umbrella being the most costly but safest, composite is just easier than your own Limited by giving you the company aspect. I'm probably wrong? as i'm still gaining the understanding i need to make the right decision.
The tax saving of your own Limited does seem the way to go once established or maybe the slighly easier route of a composite depending on how much I want to save and time I have to put in myself?
Umbrella being the most costly but safest, composite is just easier than your own Limited by giving you the company aspect. I'm probably wrong? as i'm still gaining the understanding i need to make the right decision.
The tax saving of your own Limited does seem the way to go once established or maybe the slighly easier route of a composite depending on how much I want to save and time I have to put in myself?
If you're looking at doing this as a career move, i.e. long-term and not just 6-12 months, then I wouldn't bother with the umbrella company. I'd just go limited and get a good accountant. Start as you mean to go on, and all that.
Don't take the "upto 85% take home" from umbrella companies as gospel, either. You might get that under the right circumstances, but not every time. I spoke to an agent once and he worked it out that on that particular contract, I'd get 61% take home. The phone called ended soon after.
Don't take the "upto 85% take home" from umbrella companies as gospel, either. You might get that under the right circumstances, but not every time. I spoke to an agent once and he worked it out that on that particular contract, I'd get 61% take home. The phone called ended soon after.
Do bear in mind that, whichever way you choose to go and whichever way of contracting you feel gives you the safest feeling of shelter from IR35, HMRC are increasingly looking at the notional contract (ie. the reality of the situation on a day-to-day basis) rather than clever company structures and slick contracts.
Whilst a good contract is important, making sure that you never look, act or get treated as an employee at a client site is vital, preferably with documentary evidence.
Make sure you do not appear on the company address book unless you are marked as contractor, have a non-staff security pass, do not attend staff functions and staff briefings, get specifically excluded from the staff christmas party, do NOT accept business cards from the client with your name on it, etc, etc.
If you can get the client to confirm in writing that they accept your right of substitution, right of parallel contracts, lack of control, etc. then even better.
Being outside IR35 is a bloody-minded attitude of mind, not just a fire-and-forget company structure or "IR35-proof" contract.
Whilst a good contract is important, making sure that you never look, act or get treated as an employee at a client site is vital, preferably with documentary evidence.
Make sure you do not appear on the company address book unless you are marked as contractor, have a non-staff security pass, do not attend staff functions and staff briefings, get specifically excluded from the staff christmas party, do NOT accept business cards from the client with your name on it, etc, etc.
If you can get the client to confirm in writing that they accept your right of substitution, right of parallel contracts, lack of control, etc. then even better.
Being outside IR35 is a bloody-minded attitude of mind, not just a fire-and-forget company structure or "IR35-proof" contract.
Edited by JonRB on Saturday 30th September 20:56
Ultraviolet said:
I agree with the previous threads - it is the actuality that defines your IR35 exposure, not the vehicle or contract you use. My advice would be to insure yourself against IR35. This costs around £600 / year and will cover legal costs if you are found to be IR35 liable.
UV
How much?!!! I would suggest you join the PCG instead!UV
Rather than start a new thread I thought I'd tack onto this one...
Can someone help me with some self assessment advice?
In Jan I started contracting. Will revert back to perm at some point, but meanwhile I need to navigate my first non-perm self assessment (prior perm ones were all easy). I went down the ltd company route, and fill in a questionnaire periodically. I am the 100% shareholder of a ltd co. but not the director. I pay a service company (if that's the right term) to run the ltd co. and worry about filing company accounts, NI etc. (I pay both employer and employee NI). The ltd co pays me a small salary but the bulk is in dividends after corporation tax, expenses etc.
So, the main question is, what do I put in the self assessment - salary in the employment pages I assume, but what about the divs - does this go in the employment section or the Income section (Q10) of the main return as if they were divs on an investment, or do I need to get the self employed section (which you can't do online)? The divs are not included in the P60.
Secondly, what about expenses - these are already deducted before profit is calculated, so does that mean that I don't enter them in the tax return (expenses section)?
Third question - am I likely to get hit for a large tax bill on the divs? Is there a threshold on this? I'm not worried for 05/06 but 06/07 is worrying me.
cheers
Can someone help me with some self assessment advice?
In Jan I started contracting. Will revert back to perm at some point, but meanwhile I need to navigate my first non-perm self assessment (prior perm ones were all easy). I went down the ltd company route, and fill in a questionnaire periodically. I am the 100% shareholder of a ltd co. but not the director. I pay a service company (if that's the right term) to run the ltd co. and worry about filing company accounts, NI etc. (I pay both employer and employee NI). The ltd co pays me a small salary but the bulk is in dividends after corporation tax, expenses etc.
So, the main question is, what do I put in the self assessment - salary in the employment pages I assume, but what about the divs - does this go in the employment section or the Income section (Q10) of the main return as if they were divs on an investment, or do I need to get the self employed section (which you can't do online)? The divs are not included in the P60.
Secondly, what about expenses - these are already deducted before profit is calculated, so does that mean that I don't enter them in the tax return (expenses section)?
Third question - am I likely to get hit for a large tax bill on the divs? Is there a threshold on this? I'm not worried for 05/06 but 06/07 is worrying me.
cheers
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