Contracting Advice

[dwhyte85]

Hello EduGeekers!

 

I am just about to start some contracting. I have seen these sites saying take 90% of your contracting rate home etc, but how legal is this?

 

I'm seeing some at 85%, some at 90% - are these illegal? Under PAYE work i've done recently, I've been charged almost 1/5 of my earnings.

 

Any help appreciated.

 

Cheers!

[Steve21]

Hello EduGeekers!

 

I am just about to start some contracting. I have seen these sites saying take 90% of your contracting rate home etc, but how legal is this?

 

I'm seeing some at 85%, some at 90% - are these illegal? Under PAYE work i've done recently, I've been charged almost 1/5 of my earnings.

 

Any help appreciated.

 

Cheers!

 

Well unless I've misunderstood what you're asking, the simple answer is it depends how much you earn.

 

If you're earning £10k a year (examples only), then you'd only be charged 20% on the 1.9K~ you're earning over the limit. aka £9520 after tax, so only 5% ~

 

If you're earning £25k a year, 20% on the 17k~, you'd get £21700 so 15% ~

 

Think I worked that out right As a rough example.

 

Steve

[dwhyte85]

Well unless I've misunderstood what you're asking, the simple answer is it depends how much you earn.

 

If you're earning £10k a year (examples only), then you'd only be charged 20% on the 1.9K~ you're earning over the limit. aka £9520 after tax, so only 5% ~

 

If you're earning £25k a year, 20% on the 17k~, you'd get £21700 so 15% ~

 

Think I worked that out right As a rough example.

 

Steve

 

So it makes no difference if limited, umbrella or self employed - i'd still get the same tax thresholds?

 

Cheers!

[Steve21]

So it makes no difference if limited, umbrella or self employed - i'd still get the same tax thresholds?

 

Cheers!

 

As far as I know "in terms of PAYE" there's no difference. However remember umbrelle companies etc will take "extras" off as well as the standard tax for their processing etc In terms of Limited company etc, it'd just be that the company takes off your wages as such, rather than you paying but end of day same thing. At least that's how I understand it, but I'm not an accountant

 

* Edit - As a side point, I'd assume your refundables would differ too, for things like vehicle milage etc etc depending who you're workiung under.

 

Steve

[m25man]

My guess is that the claims made by the sites in question is quite possible but in only exceptional circumstances.

You would need to limit your personal earnings to keep below the £34370 threshold in order to do so.

 

Doing the whole limited company thing and working through an umberalla company means that you are still paid under PAYE rules about the minimum you can get away with whilst the rest of your income comes through Interim dividend payments upon which you only pay tax at 10% upto the threshold of £343750 and of course this is paid to you after your business operating expenses.

 

In theory this means that there could be enough left over each month that you could draw as dividends paying only 10% Tax so I guess thats where they get the figures from.

 

Now, it might all sound a nice little fiddle but in all honesty it's not all it's cracked up to be, you are always going to be deemed to be trying to dodge the system by others, you will have to file accounts to companies house, have accountants to pay and a deduct rake off to the umberella company (who are often just dodgy accountants trying to earn a fast buck out effectively being your agent).

To top it all if all of your work is still done through the same client in effect you could still be deemed by HMRC to be an employee and in breach of IR35 leaving both yourself and the company you are contracting to liable.

 

Obviously there are always some advantages and disadvantages to this and you need to work out the benifits are worthy of the cost and effort involved.

 

There are better ways of doing it if the conditions prevail, we are in a deep recession and companies are keen to engage contractors rather than commit to full time staff join the PCG www.pcg.org.uk it's only £120 pa for a sole trader and its tax deductable

Edited May 26, 2012 by m25man

[dwhyte85]

Yes, just read IR35... if they think you're not really a business they will tax you more, e.g, penalising most contractors... i don't have 1500 to spend on advertising

 

I am only contracting 6 weeks then going perm, but this is the quickest way to get me on-board. Although contracting is looking a little bit more exciting in terms of earnings, i can't lie!

Edited May 26, 2012 by dwhyte85

[IKWeb]

if your only doing it for 6 weeks then a limited company is not the way to go, as you have to setup bank accounts, get VAT registered, an accountant etc, then you will have to wind up the company when you get taken on after the 6 weeks.

 

I use a company called Parasol, they do all your tax and ni, and take a fixed cut each month in costs, think i pay them £75 each month for looking after everything, much cheaper than an accountant.

 

PM me if you like the look of their website if I refer you we get some vouchers :-)

 

PAYE Umbrella company | confused about umbrella or limited options?

[hit]

One of the biggest indicators of whether you are avoiding tax under IR35 is if you can substitute someone else for yourself to do the work. If you can't then the HMRC will likely deem that you are employed and not providing a service. This is what finally pushed me to leave the contract market after I got stung for a hefty bill for one contract even though I had three other contracts on the go at the same time.

 

IR35 is a real PITA as they are just guidance notes to inspectors and as such are open to (mis)enterpretation, what one inspector thinks is OK one year, next year you may get screwed for doing the exact same thing by a different inspector!

[dwhyte85]

@hit - I don't get why they are penalising contractors, especially in this climate where it's easier for business to use a contractor than employ - fair enough, as long as we/they don't evade tax.

@IKWeb - thank you, I will give them a call in the week.

[Steve21]

Personally I don't think they really are penalising contractors as such.

 

Remember IR35 doesn't apply to a lot of contractors, unless you're not really contracting as such, and are just doing more of a favour etc.

 

There's a lot of guidelines as to what does, and doesn't count.

 

If you can answer ‘yes’ to most of the following questions, you would probably have been an employee of your client for the contract in question and therefore within the new rules.

 

•Do you work set hours, or a given number of hours a week or a month?

•Do you have to do the work yourself rather than hire someone else to do the work for you?

•Can someone tell you at any time what to do, when to work or how to do the work?

•Are you paid by the hour, week or month?

•Can you get overtime pay?

•Do you work at the premises of the person you work for, or at a place or places he or she decides?

•Do you generally work for one client at a time, rather than having a number of contracts?

 

 

If you can answer ‘yes’ to most of the following questions, you would probably not have been an employee of your client and therefore outside the new rules.

 

•Do you have the final say in how you do the work for the client?

•Can you make a loss on the contract?

•Do you have to provide the main items of equipment you need to do the job for the client, not just the small tools many employees provide for themselves?

•Are you free to hire other people on your own terms to do the work you have taken on?

•If you are free to hire other people on your own terms, do you pay them out of your own pocket?

•Do you have to correct unsatisfactory work in your own time and at your own expense?

•Do you have a number of clients at the same time?

 

As you can see, If you're working for multiple people, not working set hours, "could" make a loss in terms of time/equipment, provide your own equipment etc etc, then you don't count IR35 at all.

 

It's only really if for example, I'm working as IT tech for school, then setup my own business, and still just work for the school but as a contractor. Same times, same set hours, same hourly pay etc, then I'm in breach.

 

But end of day, If it's only for 6 weeks any setup whether through umbrella, or your own company will be a lot of work for little time/advertising etc, unless you have something set in mind already?

 

Steve

[dwhyte85]

Personally I don't think they really are penalising contractors as such.

 

Remember IR35 doesn't apply to a lot of contractors, unless you're not really contracting as such, and are just doing more of a favour etc.

 

There's a lot of guidelines as to what does, and doesn't count.

 

 

 

As you can see, If you're working for multiple people, not working set hours, "could" make a loss in terms of time/equipment, provide your own equipment etc etc, then you don't count IR35 at all.

 

It's only really if for example, I'm working as IT tech for school, then setup my own business, and still just work for the school but as a contractor. Same times, same set hours, same hourly pay etc, then I'm in breach.

 

But end of day, If it's only for 6 weeks any setup whether through umbrella, or your own company will be a lot of work for little time/advertising etc, unless you have something set in mind already?

 

Steve

 

I have two job offers that would start end of June, one with the company I'm contracting for - one for another company, I don't plan to do more contracting after - I like the sound of the money but i like stability.

[hit]

As you can see, If you're working for multiple people, not working set hours, "could" make a loss in terms of time/equipment, provide your own equipment etc etc, then you don't count IR35 at all.

 

that's what I thought when HMRC collared me for one period. As I mentioned above, I was working for 4 clients but they had me because one of them would only have me doing the work. I was lucky that they only took that one to be "employed" and so had to pay PAYE for just that contract and not the whole lot!