Contractors: IR35 & general discussion

[aeropilot]

Clockwork Cupcake said:

aeropilot said:

The big players are pushing it all out to India instead (and then wondering why it all goes pear shaped and then there is no one with the skills set left in the UK to fix it/ do it properly)

The trouble with India is that there is an ingrained culture of always saying yes, never admitting that you can't actually do something, never admitting failure, and always saving face. And that is not some prejudiced sweeping generalisation; I mean it's as ingrained as queuing, apologising, and moaning about the weather is to us.

I've had some absolutely lovely Indian colleagues, very knowledgable, and competent, but sadly they have been the exception to the norm.

I agree.

For some stuff it can, and does work.
The trouble is, you need to understand what will and what won't, and the project management people don't understand how the work is done anymore...so they think just because it worked on one job it will work on ALL jobs. The guys now managing this stuff have very little hands-on experience of how to do it now, and they have been bypassed this in their 'fast tracked' route through promotion, so a lot of stuff gets missed now if subbed out to very inexperienced people.

[Clockwork Cupcake]

boiler2003 said:

I think the advice to keep the company open is because if you use Entrepreneurs Relief to reduce the tax on liquidation of the company, you will be liable to additional tax if you start a new company in broadly the same line of business within two years of closing down your old company.

In terms of working with an umbrella - they employ you not your company so your company loses it's revenue stream whilst you are working for the employee - you can obviously loan the company money if necessary to pay any residual overheads. If the company trades again, that money would be in the director's loan account and could be repaid without tax implications.

Indeed.

I've just switched accountants, and my new accountants have a deal with two Umbrella companies whereby if I need to take a PAYE contract, I can use either of those Umbrellas for no additional fees and still keep my company running.

Other accountants I looked at had a similar deal only it was either/or and they wanted to put your company dormant whilst you were using an Umbrella, which is no good for me as I have several ongoing "ad hoc" clients, plus I have freeware out in the field.

Obviously I still need to pay my accountants their £100+VAT pcm either way, but I reckon this is a fairly good deal as I am sure Umbrella fees come to more than that per month.

Edited by Clockwork Cupcake on Monday 8th March 16:56

[Olivera]

boiler2003 said:

I think the advice to keep the company open is because if you use Entrepreneurs Relief to reduce the tax on liquidation of the company, you will be liable to additional tax if you start a new company in broadly the same line of business within two years of closing down your old company.

That's a worst case scenario if HMRC investigated, and the tax due in your example would be only be the difference between the entrepreneurs relief rate (10%) and the normal capital gains rate (20%) = 10%, still far lower than the higher rate on PAYE or dividends.

If you can't foresee yourself using your LTD company within the next 2 years then IMO it's highly beneficial to close it for a number of reasons:

1) Distribute remaining funds at 10% Entrepreneurs Relief + make use of yearly capital gains allowances - VERY attractive
2) No more accounts, annual return, accountancy fees etc
3) If HMRC agree to the company closure then it makes it far harder (if not impossible) for them to pursue a retrospective IR35 investigation

[boiler2003]

Olivera said:

That's a worst case scenario if HMRC investigated, and the tax due in your example would be only be the difference between the entrepreneurs relief rate (10%) and the normal capital gains rate (20%) = 10%, still far lower than the higher rate on PAYE or dividends.

My understanding, and I am not an accountant, is that if you use Entrepreneurs Relief when you shouldn't then the distribution becomes income, subject to income tax not a capital gain - so there is a bit of a sting in the tail.

Obviously, if you can foresee that you won't need the company for two years, then all is well and good - it is difficult to be that certain though. My current contract is as close to a year-long contract as I have had - but that still leaves a shortfall of 12 months.

Interesting point about a tax investigation - I hadn't thought of that (although I don't think I have done anything wrong, I bet that is what they all say!)

If you keep your company open, I believe you can use the £2k tax free dividend allowance to liberate any retained earnings should you so desire.

[Olivera]

boiler2003 said:

My understanding, and I am not an accountant, is that if you use Entrepreneurs Relief when you shouldn't then the distribution becomes income, subject to income tax not a capital gain - so there is a bit of a sting in the tail.

Obviously, if you can foresee that you won't need the company for two years, then all is well and good - it is difficult to be that certain though. My current contract is as close to a year-long contract as I have had - but that still leaves a shortfall of 12 months.

Interesting point about a tax investigation - I hadn't thought of that (although I don't think I have done anything wrong, I bet that is what they all say!)

If you keep your company open, I believe you can use the £2k tax free dividend allowance to liberate any retained earnings should you so desire.

You might well be right about contrived use of use Entrepreneurs Relief counting as income rather than capital gains.

It is my understanding though that the 2 year rule is not absolute, there has to be a genuine 'intention of winding-up the business to obtain a tax advantage'. If you're not able to work via a PSC due to say a client blanket ban, have wound the company up and worked via other means (e.g. PAYE Umbrella), then can work via a PSC again say 18 months later, then that may well be permissible.

Avoiding any PSC use within 2 years of using Entrepreneurs Relief may still be by far the best option depending on how much retained funds you hold within your company - a £2k free dividend allowance is chump change compared to <10% tax on an unlimited amount via ER. I disposed of my company via MVL and ER last year and overall will pay about 8% tax on a 6 figure sum.

[aeropilot]

Clockwork Cupcake said:

I've just switched accountants, and my new accountants have a deal with two Umbrella companies whereby if I need to take a PAYE contract, I can use either of those Umbrellas for no additional fees and still keep my company running.

Likewise.
I will keep it going for at least 12 months just in case....and see where we are in 12 months time....but most likely, given what I'm seeing already, I suspect I'll be closing it down after that.

[Clockwork Cupcake]

aeropilot said:

Likewise.
I will keep it going for at least 12 months just in case....and see where we are in 12 months time....but most likely, given what I'm seeing already, I suspect I'll be closing it down after that.

We'll see. I think the market will stabilise and find its feet

But, yeah, whatever happens, the ground will have changed.

The stupid thing is that the requirements have never changed, not even back to pre-1999 when IR35 was first enacted.

Short term engagement of knowledge-based workers with lots of knowledge and experience, on a short term no-strings-attached "me code you long time, my code no sucky sucky" basis.

We are code wes. And I have no problem with this.

Edited by Clockwork Cupcake on Tuesday 9th March 09:16

[aeropilot]

Clockwork Cupcake said:

We are code wes.

I'm an Engineer that learnt his profession BIT (before IT) using pencils, paper and drawing boards.

I wish could still do the job that way instead of having to use all this geeky st software on a PC

Life was so much easier back then.

[Gazzab]

kingston12 said:

Countdown said:

Gazzab said:

£700 a day is a terrible rate for a senior role. If it’s then inside and eNI discounted then it’s akin to £500 a day. If you work 6 months a year only then that’s a rubbish income v’s perm.

I've just punched the figures into an Umbrella calculator and it suggests that, at £700/day they'd be taking home £8k per month net. Times that by 6 and you've got £48k net. So roughly the person is on the equivalent of £70k gross for the full year plus he gets 6 months holiday if he cant find another contract. - I think that's reasonably good but YMMV

Certainly sounds pretty good to me. I think Gazzab was probably assuming that a perm Head of Finance role would pay a bit more than they often do.

If they discount your rate for employers NI and you pay for an umbrella etc then I guess it’s about £55k pa based on 6 months work. Compared to a perm deal as a package at say £100k plus it’s a terrible contract.

[Carl_Manchester]

Olivera said:

Last day at my current client tomorrow - decided to take a break of a few months up to a few years if I fancy.

Anyone else taken a long term break from contracting and just done as you wish? What did you get up to?

I did New York>Chicago>Vegas>San Diego>Hawaii

stayed in Hawaii until i got bored and came home.

in my experience boredom sets in after 3 months wherever I am and i need to go back to my work.

[V8mate]

Noodle1982 said:

Has anybody tried out the newest CEST tool?

The client I'm currently contracting too has dismissed any QDos determinations and is only accepting the government's CEST result.

Every contractor I know here has answered it honestly and everyone is showing as being outside.

Job done.

I've not used the 'If the contract is affected by IR35 off-payroll rules' limb, rather the 'Is work classed as employment or self-employment for tax purposes' limb, and every time I just get this at the end:

[Deep Thought]

V8mate said:

Noodle1982 said:

Has anybody tried out the newest CEST tool?

The client I'm currently contracting too has dismissed any QDos determinations and is only accepting the government's CEST result.

Every contractor I know here has answered it honestly and everyone is showing as being outside.

Job done.

I've not used the 'If the contract is affected by IR35 off-payroll rules' limb, rather the 'Is work classed as employment or self-employment for tax purposes' limb, and every time I just get this at the end:

+1

Thats what i'm getting too. Really helpful.

[rustyuk]

The code for the CEST tool is all on GitHub.

[bing]

I thought HRMC said that IF you stayed with existing client and then went inside IR35 they wouldn't chase for any back dated taxes from before April 2021? Or am I getting this wrong?

[Gad-Westy]

bing said:

I thought HRMC said that IF you stayed with existing client and then went inside IR35 they wouldn't chase for any back dated taxes from before April 2021? Or am I getting this wrong?

You are right. But whether you should trust that statement is highly debatable.

[bing]

Gad-Westy said:

bing said:

I thought HRMC said that IF you stayed with existing client and then went inside IR35 they wouldn't chase for any back dated taxes from before April 2021? Or am I getting this wrong?

You are right. But whether you should trust that statement is highly debatable.

Yea this is the thing, also with decent contracts being scarce atm do you stay and take a risk or go?

[Deep Thought]

Gad-Westy said:

bing said:

I thought HRMC said that IF you stayed with existing client and then went inside IR35 they wouldn't chase for any back dated taxes from before April 2021? Or am I getting this wrong?

You are right. But whether you should trust that statement is highly debatable.

Thats the risk isnt it?

But as has been said, who can at the moment, given how hard it is to get work, afford to simply walk away?

[Gad-Westy]

bing said:

Gad-Westy said:

bing said:

I thought HRMC said that IF you stayed with existing client and then went inside IR35 they wouldn't chase for any back dated taxes from before April 2021? Or am I getting this wrong?

You are right. But whether you should trust that statement is highly debatable.

Yea this is the thing, also with decent contracts being scarce atm do you stay and take a risk or go?

No right or wrong answer and will depend on your appetite for risk and full circumstances. Probably most importantly, how long you've actually already been involved in that project (and therefore how much back tax you'd be opened up to) and also how confident you'd feel defending your own outside IR35 assessment if push came t shove.

[aeropilot]

bing said:

Gad-Westy said:

bing said:

I thought HRMC said that IF you stayed with existing client and then went inside IR35 they wouldn't chase for any back dated taxes from before April 2021? Or am I getting this wrong?

You are right. But whether you should trust that statement is highly debatable.

Yea this is the thing, also with decent contracts being scarce atm do you stay and take a risk or go?

I think it all depends on how long you been on that assignment prior to end of March 2021?

I will have only been with client for 4 months by end of this month, so potentially less risk compared with if been there 12-18+ with a client, as in the case of one of the other Engineer's where I am, who despite many attempts to make him stay is walking away, as risk too great in his view, as he's been there just over 2 years.

[Deep Thought]

Gad-Westy said:

bing said:

Gad-Westy said:

bing said:

I thought HRMC said that IF you stayed with existing client and then went inside IR35 they wouldn't chase for any back dated taxes from before April 2021? Or am I getting this wrong?

You are right. But whether you should trust that statement is highly debatable.

Yea this is the thing, also with decent contracts being scarce atm do you stay and take a risk or go?

No right or wrong answer and will depend on your appetite for risk and full circumstances. Probably most importantly, how long you've actually already been involved in that project (and therefore how much back tax you'd be opened up to) and also how confident you'd feel defending your own outside IR35 assessment if push came t shove.

I think the odds of them doing a full investigation on an individual based on the above scenario would be very low. Their ROI in terms of cost / time wouldnt be worth it, so they'd have to have other information to support it being worth their while, rather than doing a speculative investagation to recover a few thousand or tens of thousands (i think a full investigation costs them £20K). There are much bigger fish to fry, for what amounts to a relatively small amount of investigations they can man.

BUT it wouldnt surprise me if they poke people in this scenario with formal letters asking them to explain the determination, or an opportunity to "ensure your previous years taxation is correctly aligned".