Good evening!
I posted recently about my husband setting up a ltd company as he is currently working as an IT contractor and paying ridiculous fees to an umbrella company to do his payroll.
I'm just a little concerned about IR35 issues. For example, he's starting a new 3 month contract next week and I'm pretty sure he'd be classed as an 'employee' if he were to be investigated. So today's query is whether you can make yourself IR35 proof (if possible, which I doubt - i.e. he'll be trying to drum up other business like fixing peoples computers in the evenings, etc., so he won't just be doing the contract. He will, however, be working set hours, using their equipment, doing what they ask him to, and so on, at the clients premises), or should I set up a limited company myself and be the umbrella?!! I see that so many contractors are ltd companies so how do they get around the IR35 issue, or do they bury their heads in the sand / not know about it?!!!
Thanks
Liz
They changed IR35. Originally it was taken on the business as a whole but over time it changed to IR35 being judged on a client by client basis so its quite possible to be IR35 on one job whilst non IR35 on another that is being performed at the same time.
Your best bet is to contact the PCG about contract reviews and IR35 insurance.
As for setting up you own umbrella... Ask yourself where are all the dozens of unbrella companies that were around a few years ago.
HMRC go after them, picking them off one by one, and then they also go after the people that have worked through them thinking that they were immune. HMRC's success rate at chasing the individuals (rather than the umbrella companies) is not great but it doesn't stop them putting the frightners on which is another good reason to affilliate yourself with the PCG.
The complaint about the price for payroll is because its not really a charge for Payroll but rather a charge for for using their vehicle for paying reduced tax.
As for getting around the IR35 issue. many don't. They simply pay the tax and NI on the money that cannot otherwise be utilised in mileage, pensions, accomodation, 5% of turnover rule, etc. And at least that way they know that they should avoid an eventual letter on the dorrstep with a huge demand for repayment of tax, penalties, interest and surcharges.
As an exemple, I had one case where HMRC chased a debt for £3000 but with everything else that they were able to add they actually came in asking for £15k with the intent of settling for £3k if they got their money immediately. They just used the higher figure for leverage.
kind regards,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Wow, thank you! Would we be safe then to just set him up as a ltd co and pay him through PAYE and avoid the dividend route? That way everything has been paid?!
Another quick question.....how would it work if we were to join forces and become an 'IT and Accounting Solutions' company as he does a bit of IT work for my clients so it wouldn't be unfeasible for us to be a team?! I could be the only shareholder for dividends purposes, and he could just be paid through PAYE? I normally just deal with sole traders so this is really testing the grey matter!
better to set up a limited company and pay a salary level so that you at least pay some nic and tax. With the £2k employment allowance this makes even more sense. Pay a salary of say £20k with the ee nic and paye being paid and avoid the er nic. Take the rest as dividends. That is more likely to keep you under he rc radar.
personally I would keep businesses separate as hmrc may argue that they are distinct businesses especially if one is loss making which is being offset against taxable one
.....how would it work if we were to join forces and become an 'IT and Accounting Solutions' company
Hi. Your reference to this mad me smile, as my husband and I did exactly this 18 months ago. He is an IT contractor, who had been a sole trader, but then got a contract with a bank, and they insisted he work through a ltd company. When we looked into setting it up, the accountant (who I do some work for) advised us to set up one business as an IT and Accounting Solutions company, with us both as directors. He does small IT fixes for others, some of which are my clients, along side the big contracts. I had done bookkeeping as a sole trader, before re-branding under the Ltd comp. Both sides of the business make a profit, so there is no fear of losses being off set etc.
We both take a salary, (he a larger one than me so there is an amount of PAYE and NI paid,) and then a balance of dividends. He belongs to the PCG, and tries to make sure each new contract is outside of IR3 as far as possible.
There are various ways of setting up, just make sure you are as compliant as possible with it all!
