Contractors: IR35 & general discussion

[WayOutWest]

What is the consenus on umbrellas vs ltd cos for inside IR35 contracts now?
For reference I've run a couple of ltd companies in the past, but been perm for a few years so a bit out of touch. Over my contracting years there was a gradual chipping away of ltd company advantages due to the evolution of IR35 policy and dividend tax changes kicking in.
Eventually a company I contracted for even decided to get rid of all contractors due to the changes made about 5 years ago. It sounds like things have got even worse since.

So given the need to build up a pension pot anyway, on the basis of stuffing £40k pa in a pension is there anything in it between a brolly and a ltd co these days given the hassle and cost of running the latter?
Are there brollies that offer salary sacrifice pension schemes so you get the NI savings as well?

[Gazzab]

I can’t recall all the arguments and facts but apparently you really don’t want to use your own limited co for inside gigs. Then you have the issues with the minefield that is umbrellas. I’ve avoided this so far. An agent called me yesterday re an inside role. Said that’s ok if it’s 2k a day!

[Blown2CV]

WayOutWest said:

What is the consenus on umbrellas vs ltd cos for inside IR35 contracts now?
For reference I've run a couple of ltd companies in the past, but been perm for a few years so a bit out of touch. Over my contracting years there was a gradual chipping away of ltd company advantages due to the evolution of IR35 policy and dividend tax changes kicking in.
Eventually a company I contracted for even decided to get rid of all contractors due to the changes made about 5 years ago. It sounds like things have got even worse since.

So given the need to build up a pension pot anyway, on the basis of stuffing £40k pa in a pension is there anything in it between a brolly and a ltd co these days given the hassle and cost of running the latter?
Are there brollies that offer salary sacrifice pension schemes so you get the NI savings as well?

it's not really a comparison as it's not a choice you can make for a given role... what you're really asking is a comparison between inside and outside IR35, I am assuming.

[Blown2CV]

contract coming to an end slightly early due to client having new leadership, restructure, funding diversions... you know all the old ste.

Seen it coming so have been looking around... was a bit concerned by how quiet the market seems in my line of work, but it seems to have gone a bit mad this week, which is great.

[WayOutWest]

Blown2CV said:

WayOutWest said:

What is the consenus on umbrellas vs ltd cos for inside IR35 contracts now?
For reference I've run a couple of ltd companies in the past, but been perm for a few years so a bit out of touch. Over my contracting years there was a gradual chipping away of ltd company advantages due to the evolution of IR35 policy and dividend tax changes kicking in.
Eventually a company I contracted for even decided to get rid of all contractors due to the changes made about 5 years ago. It sounds like things have got even worse since.

So given the need to build up a pension pot anyway, on the basis of stuffing £40k pa in a pension is there anything in it between a brolly and a ltd co these days given the hassle and cost of running the latter?
Are there brollies that offer salary sacrifice pension schemes so you get the NI savings as well?

it's not really a comparison as it's not a choice you can make for a given role... what you're really asking is a comparison between inside and outside IR35, I am assuming.

I did say inside IR35 as the type of roles I would go for would be more likely to be in that camp. When I was last contracting via ltd co there was, shall we say, room for interpretation. But that seems to have gone. I just wondered what most people were doing now for IT consultancy roles.

I'm just catching up on ContractorUK for the first time in years. So far I have gathered the government and HMRC seem to be continuing to screw things up on an epic scale.

[Clockwork Cupcake]

WayOutWest said:

I did say inside IR35 as the type of roles I would go for would be more likely to be in that camp. When I was last contracting via ltd co there was, shall we say, room for interpretation. But that seems to have gone. I just wondered what most people were doing now for IT consultancy roles.

If the client insist that you are inside IR35 and want you on PAYE then it makes absolutely no sense to use your Ltd company, in my opinion. You may as well use a reputable Umbrella company.

There is no "room for interpretation" now as the client decides your status, not you.

[Deep Thought]

WayOutWest said:

I did say inside IR35 as the type of roles I would go for would be more likely to be in that camp. When I was last contracting via ltd co there was, shall we say, room for interpretation. But that seems to have gone. I just wondered what most people were doing now for IT consultancy roles.

I'm just catching up on ContractorUK for the first time in years. So far I have gathered the government and HMRC seem to be continuing to screw things up on an epic scale.

The end client deems you outside or inside IR35.

So if you're outside, you run via a LTD Co, if you're inside you use an umbrella co.

Day rates are generally up for roles deemed inside IR35, and as you say, you can offset a lot of the tax burden by pumping money in to your pension.

[Olivera]

Deep Thought said:

Stuff

At the risk of being accused a pedant (probably true), it's a bit more complicated than that.

Deep Thought said:

The end client deems you outside or inside IR35.

If you're working for a small/medium company (up to something like £10m turnover) you as the contractor still make the determination, which is exactly what I did on my previous contract. Otherwise the client makes the determination, but it has to be fair and according to the facts, with provision of an appeals process, and reviewed if circumstances change.

Deep Thought said:

So if you're outside, you run via a LTD Co, if you're inside you use an umbrella co.

An Umbrella company contract (i.e. on their payroll) is neither inside nor outside IR35, in fact IR35 does not apply at all. The three permutations are:

Outside IR35
Inside IR35 - very rare as this involves arcane tax legislation, where PAYE is deducted at source (like an employee) but with the net amount being passed to the LTD. Again never usually offered in practice with clients instead offering the next option.
Umbrella company - on their payroll like a normal employee, IR35 does not apply

[Deep Thought]

Olivera said:

Deep Thought said:

The end client deems you outside or inside IR35.

If you're working for a small/medium company (up to something like £10m turnover) you as the contractor still make the determination, which is exactly what I did on my previous contract. Otherwise the client makes the determination, but it has to be fair and according to the facts, with provision of an appeals process, and reviewed if circumstances change.

Noted. Wasnt aware of that RE: £10m. On the latter, it would be really nice if those things happened, but the chances of it are close to nil. The end client i am working for made a blanket determination and that was that. I'm sure HMRC will use nice, flowery language to say it must be reviewed, etc but i've never seen it happen in the real world - "oh, we'd deemed your role inside IR35 but we've reviewed this and we've now deemed your role outside" = not happening.

Olivera said:

Deep Thought said:

So if you're outside, you run via a LTD Co, if you're inside you use an umbrella co.

An Umbrella company contract (i.e. on their payroll) is neither inside nor outside IR35, in fact IR35 does not apply at all. The three permutations are:

Outside IR35
Inside IR35 - very rare as this involves arcane tax legislation, where PAYE is deducted at source (like an employee) but with the net amount being passed to the LTD. Again never usually offered in practice with clients instead offering the next option.
Umbrella company - on their payroll like a normal employee, IR35 does not apply

Lax language on my part.

In reality if your role is deemed outside IR35 you would engage via a limited company. If you're role is deemed inside IR35, to avoid all of that nonsense they push you through an Umbrella co.

[Guvernator]

99% of the jobs I see advertised as Inside IR35 are run through an umbrella. While technically it might not be IR35 to the letter of the law, to all intents and purposes, Inside IR35 = umbrella as that's what has been adopted by the contracting market.

[CorradoTDI]

Guvernator said:

99% of the jobs I see advertised as Inside IR35 are run through an umbrella. While technically it might not be IR35 to the letter of the law, to all intents and purposes, Inside IR35 = umbrella as that's what has been adopted by the contracting market.

Or the agency you work for put you on their payroll which seems to be happening more and more these days...

[Olivera]

Deep Thought said:

On the latter, it would be really nice if those things happened, but the chances of it are close to nil. The end client i am working for made a blanket determination and that was that. I'm sure HMRC will use nice, flowery language to say it must be reviewed, etc but i've never seen it happen in the real world - "oh, we'd deemed your role inside IR35 but we've reviewed this and we've now deemed your role outside" = not happening

You don't get the review or appeals process because you've not actually been offered a contract where IR35 applies, i.e. you've been offered an Umbrella PAYE contract. If you are offered a contract outside or (properly) inside IR35 then all those things *must* apply, see https://www.gov.uk/guidance/off-payroll-working-fo... sections 'Taking reasonable care when making a determination' and 'What to do if a worker or deemed employer disagrees with your determination'.

Guvernator said:

99% of the jobs I see advertised as Inside IR35 are run through an umbrella. While technically it might not be IR35 to the letter of the law, to all intents and purposes, Inside IR35 = umbrella as that's what has been adopted by the contracting market.

I agree that's the terminology frequently being used, but it's still flat out wrong.

[WayOutWest]

Thanks all. I get the pedantry/nuance on Inside/Umbrella.

I guess one other query, if say 80% of your contracts were Inside IR35 and the odd one outside (and those were not that long), would the overhead of running a Ltd Co be worth it for those few Outside IR35 contracts - could you run them through an umbrella also or do you have to now use a Ltd Co for Outside IR35 contracts?

[Clockwork Cupcake]

Guvernator said:

99% of the jobs I see advertised as Inside IR35 are run through an umbrella. While technically it might not be IR35 to the letter of the law, to all intents and purposes, Inside IR35 = umbrella as that's what has been adopted by the contracting market.

Exactly.

Likewise a one-person PSC who uses it as a vehicle for freelancing and describes it as being self-employed. Whilst they do employ themself, they are not in the strict sense Self Employed. It's one of Eric MC's little bugbears and guaranteed to have him gently frothing at the mouth.

(Said in gentle jest and affection, if you are reading, Eric)

[Clockwork Cupcake]

WayOutWest said:

I guess one other query, if say 80% of your contracts were Inside IR35 and the odd one outside (and those were not that long), would the overhead of running a Ltd Co be worth it for those few Outside IR35 contracts - could you run them through an umbrella also or do you have to now use a Ltd Co for Outside IR35 contracts?

That's a difficult one and something you would need to determine yourself based on how many are inside and how many are outside. Running a company does have overheads, so you would need to factor that.

My accountants have a deal with an Umbrella company such that when I am working through the Umbrella I continue to pay my accountancy fees and then they pay the Umbrella's fees out of that (so that I am not paying both Accountancy fees *and* Umbrella fees) and this works out quite well for me. That's probably the biggest cost to me of running a company, and that mitigates it for me.

Edited by Clockwork Cupcake on Wednesday 8th March 17:48

[AndrewO]

WayOutWest said:

Are there brollies that offer salary sacrifice pension schemes so you get the NI savings as well?

Been doing the minimium wage/maximum salary sacrifice pension for a while now. Once that is filled (£40k current yr + 3yrs carry forward) there's a few options as I see it. Obv may not suit everyone......
- Retire
- Get a remote/hybrid job abroad, allowed 90days in every 180days for Europe, billed as outside IR35 UK Ltd company.
- Wait for an outside IR35 contract but there isn't many of them. Rates are lower
- Combination of all of the above
- Go back to Inside after a few years and salary sacrifice again

[mikef]

You’d need to find a gig abroad with a company that has no UK presence and isn’t part of a group that has any UK presence, no matter how small. That may prove harder than you think, especially if you need to find an English-speaking role - I know, I’m making what may be an incorrect assumption there)

Which is why I’m just finishing up an inside, umbrella role in France

On the other hand, if you are a French-speaking Director/VP/CIO level interim manager, please let me know

[AndrewO]

When IR35 kicked off in 2020, I had a few lined up abroad but Covid travel restrictions clobbered them. Ireland was two, Norway another....occasional site visits required etc.

Makes sense what you say re: no uk presence.

[Clockwork Cupcake]

AndrewO said:

When IR35 kicked off in 2020...

IR35 dates from 1999

I think you mean the latest attempts by HMRC to catch everyone.

(I'd say that this time they have succeeded - by putting the onus on people who have no vested interest in fighting, and who are easily swayed by FUD)

[AndrewO]

Kicked off properly

I started contracting 1996....jumping contracts every 3-6mths when it initially came in.