Working as a contractor (UK)
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If you go the Ltd company route make sure you have adequate IR35 insurance (FO35[^] or similar) and understand the implications of and current interpretation of the legislation by HMRC (which basically seems to amount to "if we can find a way to retrospectively screw you over, we will" I'm afraid). The umbrella route is safer, but has far lower returns (so you need a much higher rate to match the amount you can earn via the Ltd route). Beware though that HMRC have been rumbling about going after umbrellas over travelling expenses for a while. When they finally move on that, the amount you can earn through an umbrella is likely to be even further restricted. Bottom line: unless you are serious about running as a true commercial business (multiple simultaneous clients, direct contracts with clients, named deliverables and no 9am-5pm bums on seat engagements) the Ltd company roue is probably more hassle than it's worth in the UK right now. Keeping an eye on Shout 99[^] will give you an idea of what's going on. I do warn you that it's rather depressing, I'm afraid - and rates are generally nowhere near as high as you'd expect (particularly where agencies are involved). Good luck!
Anna :rose: Having a bad bug day? Tech Blog | Anna's Place | Tears and Laughter "If mushy peas are the food of the devil, the stotty cake is the frisbee of God"
Anna, thank you for the detailed reply. my 5. Based on what you have said, to start with, I find Ltd route a bit of a hassle now. Primary reason being I am not yet prepared to deal with all the finer details to handle a Ltd. I would prefer going this route once I am used to being a contractor and learn the art. Umbrella company looks a better option to me for now. I would appreciate if you have any other advice.
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I have been working as a full time employee so far. I am planning to work as a contractor now. Which route would you advice - going with an umbrella company or register a Ltd company + hire an accountant? Do you have any recommendation for an umbrella company and/or accountant? Cheers
Limited company is fairly straight forward if you have an Accountant, which I prefer as I am in total control of all finances. All recruitment agencies have contract wording that covers you from IR35 although how this plays out in court I have no idea. Keep in mind other managed companies eg Parasol take their cut which may work out more than having a good accountant. Another option I have heard of is to setup a company via Isle of Mann etc and pay even lower tax rates, all the rich do it so why not us.
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I have been using Parasol as my umbrella company for the last one month or so and I am quite happy with their service. Setting up an account was easy. I submitted one invoice through them and it took a week for the money to show up in my bank account. They were also very prompt in responding to all my questions. Here's a link to their website if you'd like to check them out: http://www.parasolgroup.co.uk/[^]
tufkap, thank you for the recommendation. I did visit their site and they seem reasonable to work with considering you have a good experience. To get started, all I need to do is register with them and find a contract to work on, is that correct? Or do I need to know any specific details? modified on Monday, July 13, 2009 1:21 PM I see Parasol has association with PCG.
modified on Monday, July 13, 2009 1:21 PM
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Limited company is fairly straight forward if you have an Accountant, which I prefer as I am in total control of all finances. All recruitment agencies have contract wording that covers you from IR35 although how this plays out in court I have no idea. Keep in mind other managed companies eg Parasol take their cut which may work out more than having a good accountant. Another option I have heard of is to setup a company via Isle of Mann etc and pay even lower tax rates, all the rich do it so why not us.
David, thank you for the details. Finding a good accountant is a pain, I guess, unless someone recommends his/her accountant.
David Wong wrote:
Keep in mind other managed companies eg Parasol take their cut which may work out more than having a good accountant.
Based on the replies above, I am OK if managed companies, like Parasol etc, take a fair pre-decided share and not be a leech. I say this because I am just starting off and am in no condition to handle a c*ckup on my side:(. As time goes by I could learn the trade and then move to a Ltd company. I just want to play safe being a novice in contracting field. I have a contract materializing and am short on time (to a degree) that's another reason.
David Wong wrote:
Another option I have heard of is to setup a company via Isle of Mann etc and pay even lower tax rates, all the rich do it so why not us.
Is that like saving on VAT when buying items online from Jersey?
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Anna, thank you for the detailed reply. my 5. Based on what you have said, to start with, I find Ltd route a bit of a hassle now. Primary reason being I am not yet prepared to deal with all the finer details to handle a Ltd. I would prefer going this route once I am used to being a contractor and learn the art. Umbrella company looks a better option to me for now. I would appreciate if you have any other advice.
Anytime. Using an umbrella is the safest route, but please keep an eye on how the umbrella in question handles expenses (which means you need to learn about HMRC Benefits & Expenses rules, I'm afraid) so you can have some confidence they are doing everything properly and that you are not exposed to unexpected liability. The most important other pieces of advice I can offer are to a) treat the vast majority of agencies with the contempt they invariably deserve and b) don't let the client treat you as a permie. If it doesn't say so in the contract, you don't have any obligation to work their hours, fill in timesheets, holiday forms instead. If they want a replacement permie, charge them extra for the privilege. It goes without saying that you are going to have to learn how to read and check the fine print in contracts. ;) Good luck!
Anna :rose: Having a bad bug day? Tech Blog | Anna's Place | Tears and Laughter "If mushy peas are the food of the devil, the stotty cake is the frisbee of God"
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DoctorMick wrote:
a good accountant should be able to save you a lot of money in the long run but they can be quite hard to find so ask about for recommendations.
Our very own Dalek Dave? :-\
He is too busy with CCC :cool:
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You want to partner and start up the next Google? :laugh: I've also just decided to go contracting, but I prefer the warmer climes of South Africa.
Any ideas brewing in your mind yet? :-D
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Limited company is fairly straight forward if you have an Accountant, which I prefer as I am in total control of all finances. All recruitment agencies have contract wording that covers you from IR35 although how this plays out in court I have no idea. Keep in mind other managed companies eg Parasol take their cut which may work out more than having a good accountant. Another option I have heard of is to setup a company via Isle of Mann etc and pay even lower tax rates, all the rich do it so why not us.
David Wong wrote:
All recruitment agencies have contract wording that covers you from IR35 although how this plays out in court I have no idea.
Since the Dragonfly case in 2007 this has been useless in principle. The best ways to ensure safety are now to understand that : 1) Get appropriate insurance (both investigation and penalies - PCG membership includes the former, but not the latter). 2) The upper (if any) and lower contracts must be consistant (which means they both have to be independently vetted - something most agencies are likely to to reluctant to do). Use PCG standard contracts for both if you can. 3) It is essential that working practices reflect the contract (so get a written letter of engagement signed by the client which accepts your terms and conditions. This document must also make it clear to them that they cannot treat you as a permie - so no rolling projects, core hours, timesheets or holiday forms). 4) Contract schedules which name an invididual to carry out the work are a bad idea. Ideally you should be free to supply any member of your own staff, subject to security clearances etc. 5) Make sure that the client understands that in the event of HMRC making a verbal approach to them, that they should not respond to them, but contact you immediately so that appropriate professional representation can be arranged for both client and contractor. This is doubly important after the Dragonfly case - ill advised comments by a client representative in response to a leading question can cause serious problems in an IR35 investigation. Mad, isn't it? I now understand what they mean when they say the red tape is killing small businesses... :((
Anna :rose: Having a bad bug day? Tech Blog | Anna's Place | Tears and Laughter "If mushy peas are the food of the devil, the stotty cake is the frisbee of God"
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I have been working as a full time employee so far. I am planning to work as a contractor now. Which route would you advice - going with an umbrella company or register a Ltd company + hire an accountant? Do you have any recommendation for an umbrella company and/or accountant? Cheers
If you haven't already done so, check out http://www.contractoruk.com/[^] It has loads of useful information. I've used a limited company and umbrella companies. I always found umbrella companies to be a pain in the arse. You only speak to idiots on the end of a phone who have no real idea what you're asking them - they're normally not proper accountants themselves at the end of the day. I found that a ltd. company and a decent accountant to be a much better way of doing things. Because at the end of the day, you know where your money is going and why. It gives you much more flexibility. :)
"...great scott!" Dilbert: Aren't all meetings like this... Richard Dawkins: "What if you're wrong?"
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Any ideas brewing in your mind yet? :-D
The best ideas always arrive in the pub. ;)
Anna :rose: Having a bad bug day? Tech Blog | Anna's Place | Tears and Laughter "If mushy peas are the food of the devil, the stotty cake is the frisbee of God"
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The best ideas always arrive in the pub. ;)
Anna :rose: Having a bad bug day? Tech Blog | Anna's Place | Tears and Laughter "If mushy peas are the food of the devil, the stotty cake is the frisbee of God"
Ale/Lager? For me, a good cup of coffee is enough :)
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Anytime. Using an umbrella is the safest route, but please keep an eye on how the umbrella in question handles expenses (which means you need to learn about HMRC Benefits & Expenses rules, I'm afraid) so you can have some confidence they are doing everything properly and that you are not exposed to unexpected liability. The most important other pieces of advice I can offer are to a) treat the vast majority of agencies with the contempt they invariably deserve and b) don't let the client treat you as a permie. If it doesn't say so in the contract, you don't have any obligation to work their hours, fill in timesheets, holiday forms instead. If they want a replacement permie, charge them extra for the privilege. It goes without saying that you are going to have to learn how to read and check the fine print in contracts. ;) Good luck!
Anna :rose: Having a bad bug day? Tech Blog | Anna's Place | Tears and Laughter "If mushy peas are the food of the devil, the stotty cake is the frisbee of God"
Thanks for the advice. Anna you have been helpful :rose:
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Ale/Lager? For me, a good cup of coffee is enough :)
If I willingly drank lager I suspect CAMRA wouldn't have me. ;)
Anna :rose: Having a bad bug day? Tech Blog | Anna's Place | Tears and Laughter "If mushy peas are the food of the devil, the stotty cake is the frisbee of God"
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David Wong wrote:
All recruitment agencies have contract wording that covers you from IR35 although how this plays out in court I have no idea.
Since the Dragonfly case in 2007 this has been useless in principle. The best ways to ensure safety are now to understand that : 1) Get appropriate insurance (both investigation and penalies - PCG membership includes the former, but not the latter). 2) The upper (if any) and lower contracts must be consistant (which means they both have to be independently vetted - something most agencies are likely to to reluctant to do). Use PCG standard contracts for both if you can. 3) It is essential that working practices reflect the contract (so get a written letter of engagement signed by the client which accepts your terms and conditions. This document must also make it clear to them that they cannot treat you as a permie - so no rolling projects, core hours, timesheets or holiday forms). 4) Contract schedules which name an invididual to carry out the work are a bad idea. Ideally you should be free to supply any member of your own staff, subject to security clearances etc. 5) Make sure that the client understands that in the event of HMRC making a verbal approach to them, that they should not respond to them, but contact you immediately so that appropriate professional representation can be arranged for both client and contractor. This is doubly important after the Dragonfly case - ill advised comments by a client representative in response to a leading question can cause serious problems in an IR35 investigation. Mad, isn't it? I now understand what they mean when they say the red tape is killing small businesses... :((
Anna :rose: Having a bad bug day? Tech Blog | Anna's Place | Tears and Laughter "If mushy peas are the food of the devil, the stotty cake is the frisbee of God"
I agree with your points the last couple of years I usually make sure at the very least the contract I sign has all the above clauses but know that even that is not water tight. I usually have short term contracts 3-6 months so I would think I am less prone to scrutiny.
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Thanks for the advice. Anna you have been helpful :rose:
Anytime. :)
Anna :rose: Having a bad bug day? Tech Blog | Anna's Place | Tears and Laughter "If mushy peas are the food of the devil, the stotty cake is the frisbee of God"
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I agree with your points the last couple of years I usually make sure at the very least the contract I sign has all the above clauses but know that even that is not water tight. I usually have short term contracts 3-6 months so I would think I am less prone to scrutiny.
That probably helps, though I wouldn't be surprised put any target beyond HMRC at the moment based on their current conduct. The changes to the employer annual return in 2007 are what finally convinced us to move into full time product development. The "Are you a service company?" question on the P35 is effectively asking you to declare that you are a valid target for an IR35 investigation.
Anna :rose: Having a bad bug day? Tech Blog | Anna's Place | Tears and Laughter "If mushy peas are the food of the devil, the stotty cake is the frisbee of God"
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I have been working as a full time employee so far. I am planning to work as a contractor now. Which route would you advice - going with an umbrella company or register a Ltd company + hire an accountant? Do you have any recommendation for an umbrella company and/or accountant? Cheers
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Any ideas brewing in your mind yet? :-D
Ideas and brewing are currently mutually exclusive. :suss:
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tufkap, thank you for the recommendation. I did visit their site and they seem reasonable to work with considering you have a good experience. To get started, all I need to do is register with them and find a contract to work on, is that correct? Or do I need to know any specific details? modified on Monday, July 13, 2009 1:21 PM I see Parasol has association with PCG.
modified on Monday, July 13, 2009 1:21 PM
Yes, that is correct. It took a few minutes to register and then I had to send in certified copies of some identity documents. The contract was uploaded to my account after that and I just had to log in and accept it. Doing my timesheets and submitting business expenses were also fairly painless.
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Thanks Digital Man, your articles are helpful. In fact I did read them few months back when I started thinking about contracting. I see that the article talks more about a limited company approach and hiring an accountant. Please correct me if I have read it wrong. As of now, I have thought of starting with an Umbrella company like (Parasol Group[^]) and from there I will move onto a limited company. Any information I you may have about working with Umbrella company is much appreciated. BTW I'll vote for your article :rose: