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Thread: Contract work

  1. #1
    OilSheikh
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    Cool Contract work

    Good evening ... more like night ... or is it early morning ?

    I have just been offered a 6 month IT support contract offering £20ph ( don't laugh if you get more than me , I am still young ). Now, my mom is an accountant and can do payroll for me for free
    She has also set up a Limited company and has a Limited company business bank account for me.

    Now, I am also reading about IR35 ... how being inside means you get taxed more and hence earn less.
    What are the things I need to have to be outside IR35's heavy taxing ?
    Also, is it better to have my own Limited company or go for an Umbrella company ?
    And, how does the food and travel cost get included ? Do, I charge more for lunch ?

    Please share your experiences if you have been a contractor in the recent past.
    Last edited by OilSheikh; 28-02-2013 at 02:39 AM.

  2. #2
    SUMMONER
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    Re: Contract work

    If they dictate how you work and at what times you must attend the work site, you are basically replacing an employee and will likely have to pay NI contribution on what you get paid.

    If they just assign you projects and allow your company staff (and your potential sub-contractors) to get on with the general maintenance in which ever way and at which ever times you see fit, then you may be outside it's scope.

    In general most contractors that work for just one client will find it hard to get passed IR35.
    Last edited by SUMMONER; 28-02-2013 at 03:46 AM.

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  4. #3
    OilSheikh
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    Re: Contract work

    Damn, I am inside IR35!

    Found these good take home pay examples :

    Case study - Take home pay Umbrella and Limited Company

    Umbrella option

    Steve - opted for using an umbrella company that charged him a monthly fee of 5% of his earnings (fee's can be as high as 10% of the invoiced contract amount).

    Steve's decision to use an umbrella company was based on:
    1. It was his first contract;
    2. He wasn't sure if he'd be contracting for long;
    3. He was a little worried about the paperwork involved in running his own ltd company.

    After his first year of contracting Steve reviewed his finances:
    Contract Value Invoiced £65,000
    Expenses £6,000
    Umbrella Fee -£3,250
    Income tax and Employers/Employee NI: -£20,492
    Total Deductions: -£23,742

    Take home pay: £41,258

    Limited Company Option

    Julie - had previously worked through an umbrella company and decided that it was time to go limited, a number of her friends had already made the move; Julie used SJD Accountancy whose fees are £110 plus VAT.

    After one year of working through her limited company, Julie reviewed her finances:
    Contract Value Invoiced £65,000
    Expenses £8,000

    Julie's claimable expenses are a little higher than Steve's as they include her accountancy fees along with other expenses she can now claim as she's working through her own limited company. Click the link to read the SJD Accountancy Contractor Guide to Expenses.

    Accountants fee: -£1,340
    Income tax, Employers/Employee NI and corporation tax: -£15,094
    Professional Liability Insurance -£350
    Total Deductions: -£16,784
    VAT Flat rate scheme savings £1,446
    Interest from bank account £360
    Take home pay: £50,022

    Both Steve and Julie are outside IR35, if Julie had been inside IR35 her take home pay would have been £46,076

  5. #4
    mush-mushroom b0redom's Avatar
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    Re: Contract work

    The answer regarding IR35 is.... it depends. IR35 is a bit awkward in that there's no clear line of who's in and who's out. Generally if you have a mutuality of obligation clause, a right of substitution clause and appropriate control over direction and control, you SHOULD be OK.

    Expenses need to be (in the main) wholly and exclusively for the use of the business. You can claim and evening meal if you're away from home or work really late, and breakfast if you have to start really early. Lunch, well you'd have that anyway. You can expense travel costs to your client.

    If your mum is an accountant, she can answer all this, including the IR35 stuff for you. At that level of income though, I'd probably look to use an umbrella, as the overheads of running your own company (annual returns, PAYE, VAT etc) probably don't make it worth it.

    More reading here: http://forums.contractoruk.com/accou...-business.html

    and here:

    http://www.contractoruk.com/first_timers/

    In the end though, if your mum is an accountant, you're in a better position than most.

    If you sign up for that site. Make sure you read the link I sent and search. Most questions have been asked before, and if you ask dumb/repetitive questions you'll be savaged! Remember as a contractor, you're expected to know everything! Asking to be spoonfed by anyone is a very quick route out of the door.

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  7. #5
    The late but legendary peterb - Onward and Upward peterb's Avatar
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    Re: Contract work

    If you have a right of substitution clause, you should also have employer's liabilty insurance too (otherwise you can't substitute).

    VAT and PAYE aren't too difficult, but Corporation Tax is tricky. PAYE only gets difficult when you are looking at benefits in kind. It is worth trying to negotiate an exemption with HMRCS over expenses.
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  8. #6
    Seething Cauldron of Hatred TheAnimus's Avatar
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    Re: Contract work

    Quote Originally Posted by b0redom View Post
    The answer regarding IR35 is.... it depends. IR35 is a bit awkward in that there's no clear line of who's in and who's out.
    Indeed, its utter nonsense because ultimately small companies that are one, or even two people (family or partners make great un-paid help for a small/micro company, but that apparantly can be IR35 again!) have no understanding of what it or isn't IR35.

    The one thing I've found is following the ethos of "not being an employee, or replacing one" working on projects only, trying to bid for work which you can subcontract out does provide a better lifestyle!

    So thanks IR35, with your complexity, you've driven me to now only do an honest days work for an honest weeks pay.
    throw new ArgumentException (String, String, Exception)

  9. #7
    mush-mushroom b0redom's Avatar
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    Re: Contract work

    Quote Originally Posted by peterb View Post
    If you have a right of substitution clause, you should also have employer's liabilty insurance too (otherwise you can't substitute).
    Unless of course you substitute via a business to business agreement to another contractor (which is what I'd personally look to do).

  10. #8
    Senior Member ajones's Avatar
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    Re: Contract work

    The general rule to staying away from IR35 is keeping a low profile. Don't take the p1$$ and pay some tax. Don't take dividends too often (try 1-2 per year) or you could find yourself being audited, which is the last thing you want.

    Keep expenses reasonable. The bulk of my expenses are roughly £5 per day for meals, and travel expenses at the specified mileage rate.

    You are allowed to collect £3 per month to cover costs of using your home as an office. This is not a Home Office, since for that you need to setup all sorts of stuff.

    Any equipment that you need and is reasonable to purchase through the company can be expensed, but again, make sure that it's reasonable. A suit for work would not be considered reasonably for instance. Make sure that any items ould be explained as required since otherwise you could not offer whatever service your company is providing to the client.

    Work to the clock. Contractors don't work for free, extra hours to get a job done is something that permies do for the joy and love of the company. Saying that, you need to maintain a healthy client relationship, so occasional extra effort can be considered as ensuring a professional service.

    If you are contracting under the banner of "external temporary labour", i.e. doing the task that a permy would do, not project work for example, then take note of the fact you are temporary. Whilst there is no period of time that defines when a temp should be considered perm, a rule of thumb is 2 years.

    Be careful of what options you take with the business bank account.... for example, business credit cards are normally free for 6 months then they start hitting you an exhorbitant fee. Stick with a cheque book (each cheque used can be charged for) and internet banking.

    There's lots of other stuff, but you pick them up. Talk to other contractors on the job and see what they do. You'll get a lot more relevant feedback from them. And best of all, Mr. Director, is that you will pick up loads of relevant skills in book-keeping, tax law etc, which you wouldn't normally be exposed to.

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  12. #9
    (evil grin) ehhhhhhh's Avatar
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    Re: Contract work

    Quote Originally Posted by ajones View Post

    Be careful of what options you take with the business bank account.... for example, business credit cards are normally free for 6 months then they start hitting you an exhorbitant fee. Stick with a cheque book (each cheque used can be charged for) and internet banking.
    +1 for this. Most business accounts require you to deposit and keep a minimal balance as well, which was £10K a few years ago (HSBC and Barclays).

    I have stayed with my normal current accounts for this reason, it wasn't a problem while I was self-employed.

    Get info from several banks and compare them properly.

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  14. #10
    Senior Member ajones's Avatar
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    Re: Contract work

    Oh.... forgot the most important thing.

    Collect receipts. Build your own Euro receipt mountain. Even if you're not claiming for them, all are good.

    Paper, envelopes, stamps, pens, ink cartridges (office stationary and supplies)

  15. #11
    mush-mushroom b0redom's Avatar
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    Re: Contract work

    Quote Originally Posted by ehhhhhhh View Post
    +1 for this. Most business accounts require you to deposit and keep a minimal balance as well, which was £10K a few years ago (HSBC and Barclays).

    I have stayed with my normal current accounts for this reason, it wasn't a problem while I was self-employed.

    Get info from several banks and compare them properly.
    You will not find a way to contract using a personal current account. Most agencies simply will not sign a contract with someone who is self employed. It exposes them to far to many potential tax problems, hence they want to stick with a business to business basis. The correct way to set yourself up is with a Ltd company with a proper business bank account.

    I never bothered with a company credit card. I use a personal one and submit expense claims.

  16. #12
    mush-mushroom b0redom's Avatar
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    Re: Contract work

    Quote Originally Posted by ajones View Post
    The general rule to staying away from IR35 is keeping a low profile. Don't take the p1$$ and pay some tax. Don't take dividends too often (try 1-2 per year) or you could find yourself being audited, which is the last thing you want.
    There is no real guidance on dividend frequency. Your accountant can always declare funds as a directors loan in the intermediary and your directors/shareholders declare an official dividend once/twice per year.

  17. #13
    Chillie in here j.o.s.h.1408's Avatar
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    I made a similar thread and about to go contract next month

  18. #14
    The late but legendary peterb - Onward and Upward peterb's Avatar
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    Re: Contract work

    Quote Originally Posted by b0redom View Post
    You will not find a way to contract using a personal current account. Most agencies simply will not sign a contract with someone who is self employed. It exposes them to far to many potential tax problems, hence they want to stick with a business to business basis. The correct way to set yourself up is with a Ltd company with a proper business bank account.

    I never bothered with a company credit card. I use a personal one and submit expense claims.
    Absolutely. Not sure what accounts the earlier poster was looking at, but I found banks falling over themselves to open business accounts, free banking for 18 months was the offer I went for (that was pre-Northern Rock)

    Agencies will also want details of your company registratration and VAT registration.

    But if you are contracting through your limited company, you need a business bank account. And I do as boredom does with a credit card, use a personal one and claim back the business expenses.

    Don't forget record keeping, all invoices you send out, all the ones for business purchases. You need to be able to justify all income and all expenses if you get audited, and you'll need them anyway when you (or your accountant) does your Corporation Tax return. (And your CT return makes your personal self assessment return look like a child's colouring book in complexity) Oh yes, and your PAYE and VAT records too.
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