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southmartin

Contractors 'umbrella' Companies

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For years i've had a Ltd Company and invoiced clients knowing that my tax liability was about as low as possible.

However I'm now seeing sites such as http://www.bestpay.co.ukand http://first4contractors.co.uk/ which say they reduce tax liability so far, that a contractor will receive about 90% of the gross income... Which even beats the setup that a Ltd Co gives you

Does anyone know how they do it? They claim it's legal, but surely there's a loophole or 'creative' accounting somewhere??

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You will be better off being a Ltd! Some of those "unveliavable"umbrella companies are cowboys. Stick to the good ones. One that was trying to get my trade went bust with a lot of contractors money! They were very persistent!

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perfectly legit.

you can claim for pretty much everything at top whack even if you don't use it.

company car...got fuel allowance(50p per mile or so if private),

depreciation @ 25% per year(can be offset against other income)

food allowance IIRC about £35 per day, even if you use the staff canteen.

accommodation thrown in if contracting etc etc.

minimum NI stamp etc(you are your employer, so only pay the one NI-ER rate, rather than your employer paying some, and then you paying even more- NI EE after they have paid you).

TBH not really worth much anyway, and you can afford(and probably need) private healthcare if you are going self employed, no sick pay is a bummer if you get injured.....and NHS will keep you waiting months .

like pin says, use a reputable one, or at least have a good friend who is an accountant.

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From the ones i have been offered to work through they seem like they are sailing very close to the wind when it comes to tax evasion/tax avoidance

The one`s in question offered the same sort of incentives as the OP described

From what i could make out a LTD company is set up with multiple directors you being one of them,you then receive a wage equivalent to national minimum wage with the rest paid to you as a loan ...i think (with the emphasis on think) they then wind up the LTD co at the end of the tax year

i`m no tax expert by a long way but that looks to me like it`s more evasion than avoidance especially if done year on year

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For years i've had a Ltd Company and invoiced clients knowing that my tax liability was about as low as possible.

However I'm now seeing sites such as http://www.bestpay.co.ukand http://first4contractors.co.uk/ which say they reduce tax liability so far, that a contractor will receive about 90% of the gross income... Which even beats the setup that a Ltd Co gives you

Does anyone know how they do it? They claim it's legal, but surely there's a loophole or 'creative' accounting somewhere??

These look like the 'today' version of the old contractor loan schemes. If they are the same the way it works is they take the money, pay about 1% tax (say), take 9% in fees and then pass the 90% to you as a loan* - these loans don't incur income tax, as they're a loan.

If you're lucky and they don't disappear one day with all the client money then this carries on for years.

Then about 5 years later HMRC come along, say that it actually was a wage all along and ask nicely for all the money. You go to the provider who promised a guarantee only to find that they folded two weeks previously. See here: http://webarchive.nationalarchives.gov.uk/20140109143644/http://www.hmrc.gov.uk/news/contractor-loan-schemes.htm

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Ah I see - It's starting to sound a bit dodgy - especially as, if you say, it's a loan and they go bust. I presume the law says that you're liable for the owed tax (and amounts to being whatever HMRC say it is at the time)

Is a 10% tax saving worth the potential hassle / litigation / stress?

I suspect not. Granted it may be if you're comparing it with PAYE, but with a well setup Ltd you'd be paying around 20%, maybe a fraction lower

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I am sure its worked for some people. It's also ******ed up others.

Huge risk - but if your feeling lucky go for it !!

HMRC being able to come knocking at any point in the future is the main worry.

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  • National Living wage. Minimal tax.
  • Legitimate expenses: the tools of your trade, costs like your 'phone.
  • Big pension contributions avoid taxes (unless/until you hit the lifetime limit).
  • Dividends: at least the tax-free £5k, and optionally more, taxed at a much lower rate than earned income. Of course there's a catch: dividends come out of money you've paid corporation tax on, but it's still a lot cheaper than paying yourself a higher salary.
  • Invest in tax-saving investments to absorb your residual liability.

... or you could do something dodgy ...

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These look like the 'today' version of the old contractor loan schemes. If they are the same the way it works is they take the money, pay about 1% tax (say), take 9% in fees and then pass the 90% to you as a loan* - these loans don't incur income tax, as they're a loan.

If you're lucky and they don't disappear one day with all the client money then this carries on for years.

Then about 5 years later HMRC come along, say that it actually was a wage all along and ask nicely for all the money. You go to the provider who promised a guarantee only to find that they folded two weeks previously. See here: http://webarchive.nationalarchives.gov.uk/20140109143644/http://www.hmrc.gov.uk/news/contractor-loan-schemes.htm

These look like the 'today' version of the old contractor loan schemes. If they are the same the way it works is they take the money, pay about 1% tax (say), take 9% in fees and then pass the 90% to you as a loan* - these loans don't incur income tax, as they're a loan.

If you're lucky and they don't disappear one day with all the client money then this carries on for years.

Then about 5 years later HMRC come along, say that it actually was a wage all along and ask nicely for all the money. You go to the provider who promised a guarantee only to find that they folded two weeks previously. See here: http://webarchive.nationalarchives.gov.uk/20140109143644/http://www.hmrc.gov.uk/news/contractor-loan-schemes.htm

That was my main concern it`s all fine until the tax demand lands on the doormat

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That was my main concern it`s all fine until the tax demand lands on the doormat

And they charge some stupid interest of 8% or something pro rata on anything you are deemed to owe them.

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And they charge some stupid interest of 8% or something pro rata on anything you are deemed to owe them.

Once upon a time they used to pay interest on overpaid tax.

Maybe they still do, but at a competitive modern rate of 0%.

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Just be careful with any future contracts. Many if not most employers will only use contractors that are Ltd.

Really ? All the big banks etc.. are more than happy with umbrella companies.

People unable to claim tax relief on T&S from next year if inside IR35

stay Ltd and get your contracts checked for IR35 compliance

Did that once - but not worth it IMO. If ever investigated I doubt it would hold much water. Better just declaring outside IR35 and seeing what happens IMO. The entire IR35 thing is a grey area of nonsense anyway.

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Ah I see - It's starting to sound a bit dodgy - especially as, if you say, it's a loan and they go bust. I presume the law says that you're liable for the owed tax (and amounts to being whatever HMRC say it is at the time)

Is a 10% tax saving worth the potential hassle / litigation / stress?

I suspect not. Granted it may be if you're comparing it with PAYE, but with a well setup Ltd you'd be paying around 20%, maybe a fraction lower

An accountant once said to me: Only claim for those things you are happy to sit and tell the tax man you paid.

Would you be happy explaining claiming £35 a day for food if you spend a few quid...

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People unable to claim tax relief on T&S from next year if inside IR35

stay Ltd and get your contracts checked for IR35 compliance

What are T&S?

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Yes, I started out contracting with an umbrella. Got offered a contract with a large IT company and was told that I need to be Ltd. Something about insurance.

I had no choice but to go Ltd.

Yes I needed Insurance where I work - however there are others where I work who are with umbrellas and working away happily. Not sure how that works.

What are T&S?

Travel and subsistence.

i.e. - You live in Edinburgh but fly down to London every week to work for a client. You can currently offset your expenses as costs so your company profit is less = you pay less Corporation tax. Standard across business - but the taxman wants to stop one man bands doing it - whilst allowing the likes of Deloitte who charge their bods out at £2k per day to carry on with the tax savings.

Entirely fair and tremendous.

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Yes I needed Insurance where I work - however there are others where I work who are with umbrellas and working away happily. Not sure how that works.

Travel and subsistence.

i.e. - You live in Edinburgh but fly down to London every week to work for a client. You can currently offset your expenses as costs so your company profit is less = you pay less Corporation tax. Standard across business - but the taxman wants to stop one man bands doing it - whilst allowing the likes of Deloitte who charge their bods out at £2k per day to carry on with the tax savings.

Entirely fair and tremendous.

. You are out of date there. The rules from 5th April are:-

Workers using an umbrella can no longer claim expenses for travel and subsistence.

Workers using a limited company can provided their contract is outside IR35. The current unknown is what changes are going to be made to IR35. That should be have been revealed in December but has been delayed.

As for joining any tax avoidance scheme you would have to be mad. Granted the dividend tax will have an impact but compared to the tales of misery I see in cuk's HMRC Scheme enquires forum I will pay the money just to sleep at night.

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I know all about that ^ Hence why I was saying about the taxman stopping one man bands claiming T+S.

First umbrellas, then Ltd outside IR35 then.....its clear to see what's coming next in their sights.

IR35 is a mess as a whole anyway.

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I've contracted in the UK a number of times in the last 20 yrs. First time, unwittingly used an umbrella company that soon went bust. Prosperity was the name.

Have used ContractorUmbrella.com the last few times and found them excellent and fairly cheap. They have ex-HMRC accountants working for them and advice is excellent.

Imo, no way can an Umbrella company offer you 90% of your pay and be HMRC compliant....sounds fishy.

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I've contracted in the UK a number of times in the last 20 yrs. First time, unwittingly used an umbrella company that soon went bust. Prosperity was the name.

Have used ContractorUmbrella.com the last few times and found them excellent and fairly cheap. They have ex-HMRC accountants working for them and advice is excellent.

Imo, no way can an Umbrella company offer you 90% of your pay and be HMRC compliant....sounds fishy.

I think I remember a few going bust. One was always after my business, claiming to save me even more tax somehow. I stayed with the honest one, who made sure I paid tax.

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An umbrella company that just takes care of the admin and pays you more or less what you'd have earned if you'd had your own company (and hands over the the appropriate amount of tax to HMRC) is a reasonable choice if you don't want the hassle of doing company accounts etc., although there is a bit of credit risk to worry about. One that pockets a big chunk of your money in return for some dodgy offshore loan scheme is a whole different kettle of fish. If you don't mind the risk of HMRC coming after you in a few years with the huge knobbly bum-dildo of vengeance in hand, then go right ahead....

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An accountant once said to me: Only claim for those things you are happy to sit and tell the tax man you paid.

Would you be happy explaining claiming £35 a day for food if you spend a few quid...

Reading this thread, I think sometimes people forget that a lot of accountants can be too clever for *YOUR* own good!

Remember, most accountants have one seen two naked wimmin - their mum + their sister!

They are accountants not magicians FFS. Their lunch is being eaten by software.

They are competing against the government who can change the laws at a click of fingers. And apply then retrospectively!

My brother set himself up as a contractor recently - line of work means there's no employed jobs; hire + fire.

My mums goes' Well, as long he's got a good accountant ...'

I said 'WTF! He just needs one who is not a fckig idiot.

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On clever wheezes Im always reminded of Marc Bolans estate.

http://www.tilldawn.net/InterviewReviewStory/millions.html

http://www.dailymail.co.uk/tvshowbiz/article-2025138/How-David-Bowie-saved-Marc-Bolans-son.html

'Marc had discovered he was paying tax at 83p in the £1, so he was setting up a tax-avoidance trust in the Bahamas to give his family financial stability.

Rolan says: ‘Unfortunately, he hadn’t had time to finalise all the details, so although his income was being protected, he hadn’t yet made provision for my mother to have access to the money.’

The trustees said their hands were tied. An added complication was that Marc was still legally married to his former publicist, June Child.

‘My mother went from a millionaire lifestyle to virtual poverty, and I often went without,’ adds Rolan. ‘But even if we had money, it could never have made up for Dad not being there. Mum tells me I often cried for him.'

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