85% – 90% Limited Company Returns Onshore

Limited Company Returns

Limited Company Returns

British contractors can now get limited company returns of 85% to 90% returns on their income – or even higher. We have one company which offers 92% returns.

Those British contractors who paid the IR35 Tax are the worst off of all contractors as they pay tax as if they were a permanent employee.

Onshore Umbrella Company Contractors

Onshore umbrella company contractors are next worse off. They were able to claim up to 5% of their expenses against tax and so were able to save a little.

However, the Chancellor intends to take away their ability to offset expenses such as travel and subsistence against tax. He intends taking this away in April 2016. He is currently in consultations as to the best way to do this.

British Limited Company Contractors

A bit better off are the standard limited company contractors. It is reckoned that they pay £10,000 a year less tax than umbrella company contractors, on average.

Better still, are offshore umbrella company contractors who can get 84% to 90% returns on their money earned.

They are able to do this because of three British laws which explain, also, why the Government doesn’t stop offshore tax avoidance  :-

Money Sent Offshore Not Taxable

1.  Money sent offshore is not taxable. It used to be but that was one of the first laws that Mrs Thatcher brought in when she won the 1979 election.

Tory Grandees, like Lord Ashcroft, the Tory party’s biggest donor, Ian Cameron, David Cameron’s father, and Lord Astor, his father-in-law, took advantage of this.

They set up schemes that would save them a fortune in tax, and, in Ian Cameron’s case, to allow others to save a fortune in tax.

Loans Not Taxable

2.  The second law that makes this feasible is that loans are not taxable.

So, what happens is that British contractors pay their money to an offshore company who invest it for them.

The scheme pays the contractor the equivalent amount in loans.

Supposedly the contractor will pay the full amount of tax on that money when it comes back onshore. Of course it never does for reason.

Contractor Loans Not Inherited

3.  The third law that makes it feasible is that you don’t inherit loans. The loan debts of one generation do not pass to the next. Your loans die with you. This means that the loans you took out in lieu of your income will eventually pass away with you.

The Conservatives won’t change law as so many of their own make use of this to save themselves a fortune. The big hedge funds, who are such big donors to the Conservative party, would lose out if this was changed.

They won’t change the second law, i.e. they wouldn’t make loans taxable, as this would cause chaos in the banking sector. This is so lucrative worldwide for the UK, which has a dominant position in Europe in it.

They wouldn’t change the 3rd law, either, to pass on one persons loan debts to the next generation.

Can you imagination the outcry that would cause among Tory supporters if they did that?

So, that is why offshore umbrella companies work for British contractors.

Onshore Limited Companies

There is an alternative, now, however.

There are onshore limited company solutions which take advantage of efficient tax planning to give contractors similar returns that they can get from using offshore umbrella companies. However, all of the money stays onshore.

British contractors can get limited company returns in the same 85% to 90% bracket as they would for using offshore umbrella companies. However, all of the money stays onshore and passes through their own limited companies in the UK.

Companies Offering High Limited Company Returns

 BestPay Limited Company Solutions offer British limited company returns of 85% to 90%.

Those solutions have saved British contractors a fortune for years.

Offshore Schemes legal says top HMRC boss

Offshore Schemes Legal

Offshore Schemes Legal

Are offshore schemes legal? Are the Offshore Umbrella Companies that contractors use legal?

Offshore Schemes can be perfectly legal HMRC’s Commissioner and Director General for Enforcement and Compliance, Jennie Granger, said. According to today’s Times she conceded that “There is nothing illegal about an international structure, especially in a globally integrated economy and these arrangements may be particularly legitimate”.

So, many contractors and freelancers are now aping the bigger companies and even members of Parliament. They are using offshore schemes such as offshore umbrella companies.

Offshore Schemes Legal – Tax Systems of Countries

Jonathan Schwartz, a barrister at Temple Tax Chambers and a professor in international tax law, said “All laws influence and tax laws are no different. The tax behaviour of companies is largely driven by the tax systems they engage with.

“Tax administrators must apply the law as it exists rather than what they, or anyone else, might think it ought to be”.

Offshore Umbrella Companies Legal

That makes a lot of sense. There’s no point in Governments or MPs moaning about companies behaving immorally, when avoiding tax, when they just follow the tax rules created by Governments. It is their laws that make offshore schemes legal.

Usually the companies are just using schemes that the Government created, like special tax dispensation for the film industry, so that they come to the UK rather than go elsewhere.

The UK Government complain about companies avoiding paying tax whilst, at the same time, progressively cutting Corporation Tax. This is with the purpose of undercutting other countries. It is their stated intention to have the lowest Corporation Tax of all the G8 countries.

David Cameron’s Legacy

Then there’s David Cameron whose family money came from his father Ian’s use for himself, and others, of offshore schemes. There’s Chancellor Osborne who has an offshore family trust worth £4.5m.

Then there’s Margaret Hodge herself, the hammer of the multinationals like Google, whom she calls immoral. She has been exposed as owning part of an offshore company.

Stemcor paid her dividends of £50,000 last year. Her stake is worth over a million pounds. Tax was paid at less than 2%. Google would have been appreciative.

Said Mike Dean of Milestone International Tax partners “The companies under fire are doing nothing wrong legally, morally or ethically. They are, in fact, using the tax system in the way intended”.

Therefore, its Government laws that make offshore schemes legal like offshore umbrella companies.

Gain an Advantage

It is Governments who have been trying to ‘cheat’ and gain an advantage on other countries, in certain areas, that has caused this problem. Offshore schemes and offshore umbrella companies are just taking advantage of all of this.

So, it is Governments who make offshore schemes legal.

See our Offshore Umbrella Company Directory

offshore umbrella company list

Offshore Umbrella Company List

Offshore Umbrella Company Benefits

Offshore Umbrella Company Benefits

Offshore Umbrella Company Benefits

Benefits – so what are the offshore umbrella company benefits?

The main benefits are all connected to the money. This is the best way for contractors to keep most of their money. They can keep anywhere between 84% and 90% of their hard-earned money.

The exact amount depends on how much they are earning.

Mrs Thatcher Changed the Loan laws

Offshore Umbrella Companies started up when Mrs Thatcher changed the laws so that money sent offshore was no longer taxable. It was one of the first laws she brought in when she became Prime Minister in 1979. The Tory party grandees were among the first to get the benefits.

One of the earliest to benefit was David Cameron’s father Ian. He quickly saw the benefits  and set up lots of offshore schemes. Indeed he made his money that way. That’s where David Cameron’s inheritance came from.

Many of the Tory grandees saw the benefits and operate schemes like these including Lord Astor, David Cameron’s father-in-law and Lord Ashcroft, the Tory party’s main donor.

How Loans Works

So, the money that is sent offshore stays offshore. The Offshore umbrella company loans the contractor money in lieu of that loan. The loan is never paid back. The contractor defaults on that. The Offshore Umbrella Company takes the money in lieu of that.

Money is not taxed until it comes back onshore. The money never does. It is different money. Loans aren’t taxable. This is how it all works. It’s how the contractor benefits.

Tax Avoidance

It is tax avoidance, of course. However, it is legal and it is not tax evasion which is illegal.

The Government complain about it. However, it is they who make the rules. It is they who can change them. Contractors and others are only taking advantage of the rules as they are. They take the benefits from the Governments own laws.

Indeed it is the legal duty of the directors of a company to maximise the returns for shareholders.

Of course, the Government don’t want to change the rules as it benefits many of their party sponsors. Indeed George Osborne has a £4.5m family offshore trust. He sees the benefits of it.

Benefits Not Intended

It’s annoying for the Government when newspapers reveal that comedians and rock stars are reaping these offshore umbrella company benefits.

The benefits weren’t intended for the likes of them and contractors. The Government had to react. However, they don’t change the law.

For some examples of these companies see Offshore Umbrella Company List

offshore umbrella company list

Offshore Umbrella Company List

Best Umbrella Companies Alternatives for UK Contractors

Best Umbrella Companies Alternatives

Best Umbrella Companies Alternatives

So, what are the best umbrella companies alternatives?

Indeed, what makes a good umbrella company and what are the best alternatives to umbrella companies?

First of all what are the alternatives to umbrella companies.

Well, you could just pay tax as if you are an employee.

Retaining More of Your Money

For a person earning £100,000 a year that would mean that you would retain £55,000 of your hard-earned money and would give the Government £45,000 a year.

Chancellor Osborne would be delighted by that. He, of course, has an offshore family trust from which he benefits.

So, a freelancer using an Umbrella Company keeps £60,000 of his, or her, money earned and would send the Treasury £40,000 a year.

However, from April 1st 2016 much of this gain disappeared as the Chancellor decided that most umbrella company contractors are no longer able to claim travel & subsistence expenses against tax.

Limited Company Alternative

The main alternative to umbrella companies is the limited company – or the personal service company as the Chancellor likes to call it when one person owns it.

Therefore, of the £100,000 a contractor earns, he, or she, keeps £75,000 of that, donating £25,000 a year to the country.

Now, those using tax efficient limited company structures can retain £85,000 of their hard-earned cash.

Most limited company contractors don’t use the most efficient methods of protecting their income from the taxman and these vehicles help them to do so.

So, to find out more click on Limited Companies

Onshore Umbrella Companies

There are also specialist onshore non-PAYE umbrella companies who allow contractors to retain £85,000 a year using different methods.

So to learn more click on Umbrella Companies

Apply for More Information on All Three Options

So, just fill in the form below to get your information pack on how the above three best umbrella companies alternatives work. Click Y against each of those options for which you want to receive the Infopack.

Your Name (required)

Your Email (required)

Your Telephone (required)

Your Daily Rate (required)

Limited Company (Y or N) (required)

Umbrella Company (Y or N) (required)

Limited Partnership (Y or N) (required)

Comments

85% – 90% Onshore Umbrella Company Alternatives

Onshore Umbrella Company Alternatives

Onshore Umbrella Company Alternatives

It would be worth contractors looking at onshore umbrella company alternatives. These can give let them keep 85% to 90% of the money they earn.

Freelancers usually take the Personal Service Company or PAYE Umbrella Company route if they don’t go with offshore umbrella companies.

Therefore, if they want to stay onshore, there are a number of alternatives to those.

Indeed, there are a number of Umbrella Company Alternatives which are onshore rather than offshore.

They can be as attractive financially as offshore companies – and none of the money goes offshore.

So, they take advantage of tax incentives in the UK.

Limited Company Alternatives

Another alternative is to use a UK-based Tax Planning solution that allows you to continue to use your limited company.

Sometimes, agencies tell contractors that they have to use one of their recommended umbrella companies. They have a  Preferred Supplier List.

There’s a good chance that the agencies are ‘getting a bung’ for doing this or getting some kind of ‘payment in kind’. This is actually illegal under the 2010 Bribery Act.

Agencies and Limited Companies

However, if contractors use one of the Umbrella Company Alternative solutions, which uses a limited company, agencies would not even be aware of it. The contractor would just tell them that they have their own limited company.

Agencies don’t insist that limited company contractors use umbrella companies.

So, here are examples of Umbrella Company Alternatives which use Limited Companies.

They make use of different tax incentives to cut the amount of tax that the contractor pays. All use the contractor’s limited company.

Example of Umbrella Company Alternative

Therefore, you should click on this to find out more information, or to apply, about umbrella company alternatives.

BestPay Umbrella Company Alternatives

One of these umbrella company alternatives should suit you. Also, they will save you lots of tax.

Furthermore, they use efficient tax planning to save contractors money while still using their limited companies.

Offshore Umbrella Companies returns for UK Contractors

Offshore Umbrella Companies Returns

Offshore Umbrella Companies Returns

Offshore Umbrella Companies returns are the best returns a contractor can get. Those using them are able to keep the most of the money they earn of all contractors.

The returns can be as high as 90% depending on income.

It’s usually reckoned that a contractor using an onshore umbrella company will pay around ten grand a year tax more than one using a limited company.

However, offshore returns dwarf even that of limited companies. Indeed, it could make another ten grand’s difference again to the UK Contractor.

Difference in Take Home Pay

So, the difference between the annual take home pay between a contractor in an offshore company and one in an onshore one can be as much as £20,000 a year.

That’s a difference, over 15 years or so, of around £300,000. Once you’ve added in the extra earning potential of having that extra money to invest, it could be quite a substantial sum we are talking about.

On the Stock Market you are able to get an average return of around 12% a year, including dividends.

Extra Money Calculation

If you calculate how much your extra 20 grand a year would come to over 15 years at 12% interest a year, your money would be worth an extra £835,000 over that 15 years.

Of course, if you are better than the average Stock Market punter you could make even more.

So, it is clear that Offshore returns are much higher than for those using onshore companies. Using them would make contractors a million quid richer in 16 and one-third years, I calculate. That’s not to be sniffed at.

If you are going to be a successful and rich contractor you should maximise your returns from your earnings.

Apply for Offshore Umbrella Companies

So, to find out more, or to apply for one, click on Offshore Umbrella Companies List to get the best offshore umbrella companies returns and offers.

Keep More of Your Income

Keep More

Keep More of Your Income

You can keep more of your income, i.e. 85% or more using one of three methods:-

Tax Efficient Umbrella Companies

There are both onshore and offshore umbrella companies. Using the standard onshore one will mean that you lose 40% or more of the money you earn.

This could be even more, however, after the Chancellor ruling that umbrella contractors can no longer offset travel & subsistence against tax.

One way to get around this was to use an offshore umbrella company. Another way is to use a more tax efficient onshore one. That’s so you can keep 85% of your money with one of those.

To lean more click on Umbrella Companies

Tax Efficient Limited Companies

The majority of IT Contractors use Limited Companies. These are termed Personal Service Companies when one person earns most of the income in the company.

However, most freelancers don’t use their companies in the most tax efficient way.

They could retain 85% of the money they earn and more if they optimised its use.

So, to find out more click on Limited Companies

Apply for More Information on Both Options

Fill in the form below to get your information pack on how the above three work. Click Y against each of those options for which you want to receive the Infopack.

Your Name (required)

Your Email (required)

Your Telephone (required)

Your Daily Rate (required)

Limited Company (Y or N) (required)

Umbrella Company (Y or N) (required)

Limited Partnership (Y or N) (required)

Comments

Offshore Umbrella Companies and how they work

How They Work - Offshore Umbrella Companies

How They Work

Contractors want to know how they work.

Offshore Umbrella Companies normally operate through loans. In 1979 the Thatcher government, in one of its very first bills, allowed money to go offshore untaxed. It doesn’t get taxed till it comes back onshore, if ever.

This opened the way for offshore schemes and offshore umbrella companies which operate in places like the Isle of Man, Jersey, the Bahamas, Bermuda etc.

Indeed most of the world’s hedge funds operate from one of the UK’s offshore islands.

How they work is that money held offshore is not taxed unless it returns to the UK. Among the first to take advantage of this were the Tory Party grandees.

David Cameron’s father made his money this way by setting up schemes both for himself and others. David Cameron’s inheritance came mostly from money earned this way. Another to benefit is Chancellor Osborne who has £4.5m held offshore in a family trust.

Tory Party’s Money

Much of the Tory party’s money comes from people who operate these schemes. Lord Ashcroft, the top donor and fundraiser for the Conservative Party operates these offshore schemes. Now contractors and freelancers are enjoying the benefits of it too.

How they work is that most of the offshore umbrella companies and offshore schemes operate through loans. Because they’ve sent money offshore untaxed, i.e. the money they earn, that money is not taxable till they bring it back onshore. However, it never does.

Because they have that money offshore, the offshore umbrella companies that they operate through will loan them money back in lieu of that. They will then take that money back at the end to pay back that loan. Money loaned is not taxable.

Different Money Comes Back Onshore

Basically it is different money that comes back onshore than the money sent off. How they work is that he contractor receives loans and never pays them back as the offshore umbrella companies take the money sent offshore in lieu of those loans.

This is all completely legal. There is nothing HMRC can do about it as it is all framed in UK law. They would have to change the law to stop it and that is fraught with difficulties and would hit the Tory Grandees who basically pay for the Conservative Party.

Very Neat Scheme

There is one other scheme, which is quite neat, which one offshore umbrella company operates. They basically invest your money in a whole range of safe companies and send you loans in lieu of that money. You may even make a profit when you eventually quit the scheme and the only tax you would pay would be capital gains tax on the profits.

The beauty of it is that you can operate this through your own limited company and it would be invisible to your agency. See details of it here – Offshore Scheme using your Limited Company

To see details of these offshore umbrella companies see Offshore Umbrella Companies Directory

Offshore Umbrella Company Returns

offshore umbrella company list

Offshore Umbrella Company Returns

So, what are the offshore umbrella company returns on your hard-earned cash compared to other options?

First of all, what are the other options?

Firstly, you can just pay up on your IR35 tax. Secondly you can operate through a Limited Company (or Personal Service Company). Thirdly you can operate through a PAYE Umbrella Company. Finally, you can operate through an offshore umbrella company.

Offshore Umbrella Company

Offshore Umbrella Company Returns can vary anywhere between 85% and 90%, depending on your income. Using offshore umbrella companies are by far the best method of keeping most of your money.

So, if you earned £100,000 you would expect to keep £85,000 to £90,000 of the money you earn.

Limited Company (Personal Service Company)

This is the next best option. However, you would still be £10,000 to £15,000 down than the offshore umbrella company returns. You would expect to keep around 75% of your money. So, you would keep around £75,000 if you earned £100,000.

Onshore Umbrella Company

Using a normal onshore umbrella company would let you keep around 60% of the money you earn. This means you would keep around £60,000 of the £100,000 you earned.

PAYE Operator

If you pay the IR35 tax or use normal PAYE, you would get back around £55,000 of £100,000 that you earned.

There are many reasons for using one or the other. However, if it is a bean count, and you are just going for the most lucrative option then the offshore umbrella company returns of up to £90,000 makes it a no-brainer for contractors.

You could be keeping up to £30,000 a year more by using an offshore umbrella company rather than using a normal onshore umbrella company. That mounts up over time. That money escapes you.

To find out more about offshore umbrella company returns you should click on Offshore Umbrella Company Directory

offshore umbrella company list

Offshore Umbrella Company List

Offshore Umbrella Companies – How Much Money will I keep?

How Much Money

How Much Money Will I Keep

Contractors want to know “How much money will I keep by using offshore umbrella companies?”

Is it worthwhile operating through Offshore Umbrella Companies? How much money will you save a year by operating this way?

Say you are a contractor who is earning just over £400 a day – which is around £100,000 a year.

If you operated PAYE you would probably keep about £64,000 of that.

Offshore Umbrella Companies Viable Alternative

Offshore Umbrella Companies Viable Alternative to PAYE Umbrella Companies and Limited Companies

If you operated through a Limited Company you might keep around £75,000 of that.

If you operated through one of the offshore umbrella companies you would keep something between £85,000 and £90,000 of that depending on how much you earn and your circumstances.

Operating Through Limited Company

So, if you were PAYE you would contribute about £36,000 a year towards the Treasury.

Therefore, if you operated through a Limited Company this loss would be around £25,000 a year.

However, going through one of the offshore umbrella companies you would give up between £10,000 and £15,000 a year. Most freelancers would be towards the lower side at 85% but if they got a really good contract rate they could probably negotiate up towards the higher mark.

It’s probably worthwhile getting a quote from 3 or 4 companies to see what is the best offer. You’ve worked hard enough for it and you might as well keep as much as you can of it.

Government Complaints

The Government complain about it but have no real will to stop it. As the top dog in Google asked, why are they complaining when it is they who created the rules that allowed tax avoidance in the first place?

Legal Tax Avoidance for UK contractors

Legal Tax Avoidance schemes used by UK contractors

It was the Thatcher Government who changed the rules to allow money to go offshore untaxed which gave rise to this tax avoidance in the first place. If they were to abolish it now it would hit many of the Conservative Party donors.

As one of top dogs at HMRC said recently many of these schemes are completely legal. If the Government want to make them illegal they have to change the laws. Until then, offshore Umbrella Companies are legitimate ways for contractors in the UK to avoid tax quite legally.

To see details of these offshore umbrella companies and how much money you would keep see Offshore Umbrella Companies Directory

Umbrella Companies Referral Fees to Agencies – Ask Them

Umbrella Companies Referral Fees to Agencies

Umbrella Companies Referral Fees

One thing of which contractors are often not aware, are umbrella companies referral fees to agencies to get them to put contractors their way.

Sometimes agencies tell contractors, especially new contractors, that they must join a particular umbrella company.

More often, they are told that they must join an umbrella company on the agency’s preferred supplier list (PSL).

Often, contractors just comply with that without question.

2010 Bribery Act and Umbrella Companies Referral Fees

Other times, agencies tell contractors that the umbrella company they want to use is not on the agency’s Preferred Supplier List. Therefore, agencies tell them, they cannot use them.

This may be contrary to the 2010 Bribery Act.

Umbrella Companies Referral Fees

Umbrella Companies Referral Fees given to agencies for contractors

The agency cannot put undue pressure on a contractor to join a particular umbrella company, or set of umbrella companies.

Umbrella Company Contractors Options

So, what can a contractor do when the agency tells them that they must join a particular umbrella company or one on their Preferred Supplier List?

The first thing that they can do is that they can refuse to do so. They should tell their agency that they are going to use a different umbrella company.

They should do this in writing, e.g. via email.

Undue Pressure to Join Umbrella Company

This ramps up the pressure on the agency. Previously, they could have said that they were not using undue pressure to get a contractor to use a particular umbrella company. They were only recommending one.

However, if they refuse this reasonable, documented request from the contractor then they have upped the stakes.

It would be hard for them to argue, here, that they were only just recommending a particular umbrella company, or set of them.

Ask Agency About Umbrella Company Referral Fee

The second thing that a contractor should do, in response to a demand from the agency to join a particular umbrella company, is to ask the agency if they get an umbrella companies referral fee if a contractor joins up with an umbrella company recommended by them.

The contractor should, once again, put that information request in writing.

Umbrella Company News UK Contractors need

Umbrella Company News for UK contractors

The agency, may, or may not, respond in writing but the very request shows that the contractor has concerns.

Agencies are all very aware of the 2010 Bribery Act.

Refuse to join Their Recommended Umbrella Company

While they put the pressure on contractors to join particular umbrella companies, they also know where the line is. That is even if they sometimes cross it.

By asking these questions the contractor is weakening the agency’s resolve to insist that the contractor joins a particular umbrella company.

Once that resolve has been weakened, the contractor is then in a stronger position. He, or she, should write to the agency saying that he, or she, will not be joining the umbrella company recommended (or forced on them, to be frank), by the agency.

Using Undue Pressure to Join Umbrella Company

They should say that they feel that the agency had put undue pressure (using that very phrase) on them to join a particular umbrella company, or group of them.

The agency will understand the significance of that.

They can then inform them which umbrella company that they will be joining.

In the correspondence to the agency, the contractor should include at least one senior person on the CC list.

Include Finance Director

There’s always the possibility that the actual agent you are dealing with is chancing his, or her, arm in order to get extra commission.

They may not be as fully aware, as senior people in the company would be, of the consequences of breaking the 2010 Bribery Act.

The Finance Director would be a good one to CC in on your emails.

Recruitment Agencies Inducing Contractors to Join Umbrella Companies

Recruitment Agencies Inducing Contractors to Join Umbrella Companies

They are ultra cautious, unlike salespeople. They understand better than anyone else at the company the full ramifications of breaking the 2010 Bribery Act.

They are also very powerful at a company, ranking only behind the Chief Executive and the Chairman. They rank ahead of an individual salesperson’s boss.

Contractor Should Stand Firm on Refusing Umbrella Company

The agency may bluster (as they do) but the contractor must stand firm when he, or she, wants to use an umbrella company not on the agency’s Umbrella Company Preferred Supplier List.

Although they would like to get the umbrella companies referral fees they don’t want to put their company in danger of breaking the 2010 Bribery Act. This would have very serious consequences for them.

Favourite Umbrella Companies for UK Contractors

Favourite Umbrella Companies

Favourite Umbrella Companies

Many people have their favourite umbrella companies. That’s especially true for agencies who tend to only include those umbrella companies on their Preferred Supplier List who give them bungs for sending contractors their way.

The 2010 Bribery Act bans this but it happens.

However, that’s another story.

So, what constitutes a favourite umbrella company?

Dodgy Umbrella Companies

Firstly, one that doesn’t try to con you in the contract.

Make sure you read the contract and if you see any clause detailing any penalties for leaving the umbrella company, run a mile.

Umbrella Company Recommendations for UK Contractors

Umbrella Company Recommendations for UK Contractors

If they are being sneaky and duplicitous in the beginning that’s because they are, well, sneaky and duplicitous.

If you go with that umbrella company you really have started off on the wrong foot.

Umbrella Company Recommended by Agency

So, should you go with the umbrella company recommended by your agency?

You would if you were an idiot.

There’s almost certainly one reason, and only one reason, that your agency are recommending a particular umbrella company to you and that is that they expect to get a fee from the umbrella company for every contractor that they send them.

What about that then?

Too many contractors think of their agency as their agents, e.g. like the Mr. Ten Percents in the Acting and Football professions, who look after their clients’ interests.

Nothing could be further from the truth.

‘Your agent’ wants to extract as much money as he, or she, can from you. If they can possibly take half of the rate that is paid by the client for you then they would happily take it without any scruples.

Umbrella Company Preferred Supplier Lists

If your agency demand that you use a particular umbrella company, or an umbrella company on their Preferred Supplier List, you should refuse to do so.

If they tell you that you have to, ask them to put that in writing and see how they react.

It is illegal under the 2010 Bribery Act for agencies to induce contractors to join a particular umbrella company for a fee.

Don’t worry about standing up to them.

Umbrella Company Costs

Umbrella Company Costs for UK contractors

They won’t dump you. The main fee you get for them is the margin they get on your weekly earnings.

The bung the umbrella company give them is just a bit extra on the side.

They are not going to reject the main course for a little dessert.

Your Favourite Umbrella Companies

Your favourite umbrella companies should pay you weekly and pay you on receipt of your timesheets.

Certainly run a mile from an umbrella company who say “we’ll pay you when we get paid” or make you wait for payment.

Many umbrella companies pay you straight away so use one of them.

Umbrella Company Fees

Before you join an umbrella company, examine the fees they charge and what you get for that.

Don’t necessarily go for the cheapest. Go for the best service at the best price. Look at what they are throwing in.

Umbrella Company Fees and charges

Umbrella Company Fees and charges for using them

See, if they throw in are any insurances like Professional Indemnity Insurance.

They can purchase these insurances in bulk so they can get them for you more cheaply than if you applied for the insurances yourself.

Tax Deductible Umbrella Company Expenses

One thing that is very important, if they are to be among your favourite umbrella companies, is to find out of they’ll help you to claim expenses as tax-deductible – and what expenses you can claim.

You can more than cover the cost of your umbrella company fees by setting expenses off against tax.

Umbrella Company contractors already pay an average of £10,000 a year more in tax and national insurance contributions than a personal service company contractor does.

Don’t make it even worse by not offsetting your expenses against tax.

Umbrella Company Contractors Who Don’t Claim Expenses

I was astonished to find that between 50% and 60% of umbrella company contractors don’t claim any expenses at all.

That would increase the tax differential between umbrella company contractors and personal service company contractors to perhaps £15,000.

Soon you’ll be talking real money.

Travel and Subsistence Expenses

From April 2016, umbrella company contractors are longer be able to offset travel and subsistence expenses against tax if they are Supervised, Controlled and Directed by their client when working for them.

It would be relatively easy for you to change your contract and working practices to make it  so that you aren’t Supervised, Controlled and Directed by the client.

Umbrella Company Comparison

Umbrella Company Comparison for UK contractors

If the client previously gave you a piece of work, told you how long it should take and told you how to do it, supervised you doing it and where you should do it, negotiate a change in the contract and working practice here.

Supervision, Direction and Control

You are an experienced contractor.

Agree the piece of work to be delivered by the client and get the agreement signed off. Do the same with the estimate for the project. Agree that and get the agreement signed off. Agree where it is best done, at your home office or at the client’s site and document that agreement.

You surely don’t need to be supervised in doing the task. When the task is delivered ask your customer to give you a signed acceptance on what you have delivered to them.

If your umbrella company won’t give you advice on how to get these expenses offset against tax after April 2016 it may be because they don’t want you to be Unsupervised, Uncontrolled and Undirected.

They may not want not to change your contract to reflect your new way of working.

Outside IR35

Why, would they not want to do this?

One good reason, from their point of view, is that Supervision, Control and Direction is one of the three major planks of IR35.

The other two major planks are the Right of Supervision and Mutuality of Obligations, i.e. the obligation for them to pay you for turning up and for them to pay you whether there is work for you or not.

IR35 and UK Contractors - Inside or Otsideu

IR35 and UK Contractors and the tax they pay

If you are able to get outside the first plank of IR35, i.e. Supervision, Direction and Control, and you enter a Right of Substitution clause in your contract, then you are only a very short step away from being outside IR35 altogether – and not have to lose all that money each year by being in an umbrella company.

Maybe that’s why many umbrella companies are not too bothered about their contractors not claiming any expenses at all against tax.

Onshore or Offshore Umbrella Companies

Of course, the favourite umbrella companies for contractors could be either onshore ones or offshore umbrella companies.

The average IT Contractor earns £425 a day. That equates to around £100,000 a year once you take out time off.

An onshore PAYE umbrella company contractor would keep somewhere between £60,000 and £65,000 in tax and NI contributions.

Offshore Schemes for UK contractors to save tax

Offshore Schemes for UK contractors to save tax

An offshore umbrella company contractor would keep somewhere between 85% and 90%, depending on circumstances, mostly on what they earn.

Umbrella Company Alternatives

So, the offshore umbrella company contractor could be keeping as much as £40,000 more than an onshore umbrella company contractor – particularly one who doesn’t claim any expenses.

Other alternatives to onshore umbrella companies include Tax Efficient Limited Companies for Contractors.

Both return £85% or more to contractors.

Expenses Umbrella Company Contractors Don’t Claim

Expenses Umbella Company Contractors Don't Claim

Expenses Umbrella Company Contractors Should Claim

There are quite a few expenses umbrella company contractors should claim but don’t.

Chancellor Osborne stated in his Autumn Statement 2015 that he was going to take away the right of umbrella company contractors to claim travel and subsistence expenses against tax if they were under the supervision, direction and control of their clients.

It was immediately thought that this could be a complete game changer for umbrella companies and their owners. It was thought that it could be an existential threat to them.

After all, if contractors will pay a monthly fee greater than what they are able to get back in tax deductions then surely there was no point in them staying in the umbrella company.

Working through Umbrella Companies

Working through Umbrella Companies for maximum returns

Umbrella Company Contractors Don’t Claim Expenses

However, figures from giant group showed that 60% of the contractors in their umbrella company don’t bother claiming any expenses at all.

So the Chancellor shutting down the travel and subsistence expenses wouldn’t affect them at all.

Many of them probably don’t even know that it has happened. When April comes they will probably be oblivious to it.

So, for what could they have been claiming?

Allowable Umbrella Company Expense Claims

For a start, everyone travels to work so they could have been getting 45p a mile deductible for the first 10,000 miles and 25p thereafter.

If you are giving someone from an umbrella company a lift to work you can claim another 5p a mile for them.

Your parking fees are claimable as are any toll charges.

If you take the train or bus to work (or even aeroplane), you can claim the full cost back in tax.

Umbrella Company Expenses

Umbrella Company Expenses explained

No Travel and Subsistence After April

This is going to go in April for those who are supervised, directed and controlled. However, why do so many current umbrella company contractors not claim for any of this?

Surely, they don’t all live in walking distance of work.

Then there are subsistence expenses.

If you are working away from home you can claim the cost of hotels and meals.

You can also claim for rented accommodation although not for food. They reckon that you would probably eat anyway.

If you do any extra work and have to eat then you can claim it too.

Expenses Deducted from Wages Before Tax

All expenses are deducted from your ‘wages’ before tax is calculated.

However, 60% of giant’s contractors don’t.

giant are not unusual other umbrella companies tell me that more than half their contractors don’t claim any expenses.

All of the above are about to go in April for those who are supervised, directed and controlled at their client’s site.

However, it is strange that so few umbrella company contractors claimed them in the first place.

Maybe they couldn’t claim subsistence as they were not working away from home. However, everybody has to travel into work.

As the umbrella company deducts  your tax and NI contributions from your salary before  it ia calculated, it could be money saved at the higher rate of tax.

Umbrella Company Costs

Umbrella Company Costs for UK contractors

Other Expenses Claimable by Umbrella Companies

So, what else can they claim.

They can claim for postage, stationery and phone calls related to their work

Also, they can claim for equipment like PCs and printers etc. that they use on their assignment

They can claim for fees paid as membership of trade bodies like contractors group IPSE

Again, they can claim for training costs and even the cost of eye tests and glasses.

A significant saving is tax-deductible for a pension scheme. Do they not claim for that?

Maybe the umbrella company has a pension scheme and claims for them but I don’t know.

Even the umbrella company’s fees are tax-deductible.

Maybe the umbrella company claims that for them automatically – but maybe they don’t. I don’t know.

Put in Umbrella Companies by Agencies

It just seems very strange that so many contractors could cut their tax bill but don’t.

Perhaps they just don’t know any better.

Maybe when they came into contracting they were edged towards an umbrella company by an agency who get bungs from umbrella companies for sending contractors to them.

Perhaps they have just remained in those umbrella companies ever since.

Contractor Tax Advice

Contractor Tax Advice on umbrella company alternatives

Umbrella Company Contractors Outside IR35

It could even be that they are outside IR35 and able to use a personal service company but don’t know it.

The difference in tax paid by an IT Contractor earning £425 a day, or £100,000 a year is currently around £10,000 a year.

When the ability to claim for travel and subsistence expenses goes in April 2016 that could rise to £15,000 a year.

With the gap rising umbrella company contractors who do claim travel and subsistence expenses against tax may look at alternatives to umbrella companies.

Umbrella Company Alternatives for Contractors

They could sue a plain old personal service company which could save them £15,000 a year in tax and NI contributions.

Also, they could use a tax efficient Limited Company Solution which would save them £25,000, or more, a year.

They could also use an Offshore Umbrella Company which would save them £25,000 to £30,000 a year.

Tax Efficient Limited Partnerships

Tax Efficient Limited Partnerships for UK contractors

Umbrella Company Contractors Who Don’t Claim Expenses

However, as regards the 60% of umbrella company contractors who don’t even bother to claim expenses, one presumes that they will carry on regardless, oblivious to it all.

There are many expenses that umbrella company contractors could claim but don’t.

Over a period of ten years they may pay a quarter of a million more in tax than they need to.

Invested properly over a ten-year period that could easily be turned into half a million.

Perhaps a new term could be coined for those contractors, who, after all, are permanent employees of their umbrella companies for tax purposes.

Maybe they could be called semi-perms.

Umbrella Company Contractors Options – Will They Now Swap to PSCs?

umbrella companies dilemma on supervision, direction and control

Umbrella Company Contractors Options

Now that the Chancellor has ruled that umbrella company contractors options can no longer include offsetting travel and subsistence expenses against tax, will they jump ship, en masse, and use personal service companies now?

Umbrella Companies have been disappointed that this has hit them but not those using personal service companies.

However, it could have been much worse for umbrella companies.

Umbrella Company Definition

Umbrella Company Definition – offshore and onshore

Abolishing Intermediaries

There had been rumours that the Chancellor was going to abolish intermediaries altogether.

He saw intermediaries as umbrella companies and personal service companies.

According to the leaks contractors were going to be on their client’s payroll once they had bene there for a month.

This rumour was changed to being only those contractors who are caught by IR35.

When it came to the Autumn Statement, and the 2016 Finance Bill, there was nothing in it at all about it and umbrella companies were most relieved.

That was an existential threat whereas this may cost them some contractors?

Mass Exodus from Umbrella Companies into PSCs?

Will there now be a mass exodus from umbrella companies into personal service companies?

Will umbrella companies lose all their contractors?

There was already a massive difference in he amount of tax and national insurance contributions paid by personal service company contractors and umbrella company contractors.

£10,000 to £15,000 a Year Difference in Tax

It’s reckoned that there would be a difference of around £10,000 a year for an IT Contractor making the average daily rate of £425 a day.

With limited company contractors still able to claim for travel and subsistence, this could rise to as much as £15,000 a year.

So, surely most of them will jump ship now?

After all, the expenses that they are able to save against tax may well be less than the amount that they now have to pay the umbrella in fees each month basically just to pay them.

Umbrella Company Contractors Options now

Umbrella Company Contractors Options lime Limited Partnerships

Most Don’t Claim Expenses

However, it seems that perhaps the majority of umbrella company contractors don’t even claim any expenses against tax in the first place.

According to giant, around 60% of their contractors don’t claim any expenses at all.

I’d seen figures of more than 50% elsewhere.

Most contractors don’t follow contractor websites.

Those that don’t and who are in umbrella companies and who don’t claim expenses will, therefore, not notice any difference.

They won’t even know what happened.

Staying With Umbrella Company

So, the vast majority of them will continue with their umbrella companies.

You could say that 50% to 60% of contractors are ‘in the bag’ for umbrella companies.

That would leave, 40% to 50% of umbrella company contractors who have been claiming expenses.

This is the vulnerable group for the brollies.

Giant reckon that “most of these are professional contractors who will be able to demonstrate that there is no supervision, direction or control over them and therefore continue to claim travel and subsistence”.

Danger They Might Join Personal Service Companies

There is a danger here, though, for giant and other umbrella companies. If those contractors can prove that they are not supervised, controlled and directed by their client company, then they may well be outside IR35.

Supervision, Direction and Control is one of the three major IR35 factors that point to being inside IR35.

If those contractors can prove they are outside that, some of them may decide to go the whole hog and save another ten grand  a year by using a personal service company instead.

That is the danger for umbrella companies.

Umbrella Company Recommendations for UK Contractors

Umbrella Company Recommendations for UK Contractors

No Existential Threat in 2016

It doesn’t look now, though, as if here is no existential threat to umbrella companies 2016.

Any further changes would be unlikely to take effect till April 2017 now.

So, how many of those 40% to 50% of umbrella company contractors who currently do claim expenses, will go?

Probably not that many will leave.

If they are not now able to claim travel and subsistence expenses against tax because they fail under the supervision, direction and control test, they are almost certainly caught by IR35 and have nowhere else to go anyway.

They cannot operate through personal service companies if that is the case.

Claiming Travel and Subsistence

So, what about those who can still claim travel and subsistence expenses against tax?

Surely, nothing changes for them.

They may well have been outside IR35 before but still chose to use an umbrella company.

Some of those did that because they did not want to take the chance of an IR35 investigation.

Others did that because they didn’t want the admin of running their own company.

So, surely not much will have changed for them.

Keeping Their Contractors

So. it looks as if umbrella companies will keep virtually all of those who didn’t claim expenses.

It will surely keep all of those who are caught by SDC and almost certainly IR35.

It will also keep most of those who can still claim expenses as they are not under SD and C.

The only ones that they might lose are those who might become more aware of the possibility of their being outside IR35 because they have had to pass the SDC test to continue to get their expenses.

Umbrella Company Contractors Options are not limited.

However, it looks as if probably 95% or more of umbrella company contractors will remain with their umbrella companies.

It may be a little harder when it comes to getting new contractors into the umbrella companies but this is a nuisance to umbrella companies rather than being an existential threat.

They will survive!

Umbrella Companies Dilemma over Supervision, Direction and Control

umbrella companies dilemma on supervision, direction and control

Umbrella Companies Dilemma

The Chancellor Osborne’s Autumn Statement and 2016 Finance Bill has caused a huge umbrella companies dilemma.

The Chancellor has said that all Umbrella Company contractors will be deemed to be under the Supervision, Control and Direction of their clients – unless it can be proved otherwise.

This would mean that they are no longer able to offset travel and subsistence expenses against tax.

As this is the main expense that umbrella companies can claim for their contractors, it means that their contractors are going to take a huge hit in their pockets.

Umbrella Companies will have to tell contractors this before April and before they notice a huge chunk mission from the money returned to them.

Umbrella Company Expenses

Umbrella Company Expenses explained

Leaving Umbrella Companies or Staying

It will also mean that many of those contractors will have a decision to make, whether to stay with their brolly or to take themselves out of IR35 and use a personal service company.

Some contractors will stay and some will go.

They have to pay upwards of £100 a month to umbrella companies, basically just to pay them.

This was offset by what they would save on an Accountant and even more by what the umbrella company could offset in taxes for them.

What they gained was more than they paid out to the umbrella company.

So, it was worthwhile for them to stay in the umbrella company rather than pay the IR35 tax.

Autumn Statement and Finance Bill

However, that situation has now changed after the Autumn Statement and Finance Bill 2016.

The main expense they could offset against tax was the travel and subsistence expenses.

That will be gone from April 2016.

So, many umbrella company contractors will now be paying the umbrella companies more than they are saving in tax.

The contractors will have a decision to make and so do the umbrella companies.

Umbrella Company News UK Contractors need

Umbrella Company News for UK contractors

Changing the Contract for SDC

However, the brollies will now have a dilemma.

Should the umbrella companies try to take contractors outside the Supervision, Direction and Control of clients?

In terms of the contract this should not be too hard to do.

The contract would say that for any task, or piece of work, the client would have to agree this with the contractor.

They would have to agree the estimate too.

Employers tell permanent workers what to do and how long it should take. Suppliers, with a contract for services, would agree with their customer what should be delivered and when.

Changing Contractors Working Practices

As I said, it would be easy enough to change contracts to reflect this. After all, umbrella companies normally have a cosy relationship with agencies who supply them with contractors.

Providing the client is reasonable, and most are, they would be happy to change the contractor’s working practice to match the contract.

Both parties would agree the piece of work,  as would the estimate. The contractor would complete the task unsupervised, using his, or her, own knowledge and experience.

Of course, they are taking a bit of a risk. If they got it wrong they could get hit for the missing tax.

However, theres is no reason to get it wrong,

It’s fairly simple. The contract HAS changed. The relationship between the contractor and the client HAS changed to a customer / supplier relationship in terms of agreeing what has to be delivered and the time it should take.

So, it is not fraudulent. It is just a fact – a change way of working.

Working through Umbrella Companies

Working through Umbrella Companies for maximum returns

Umbrella Company Options and Choice

So, here’s the umbrella companies dilemma.

Here is their Catch-22.

If they do help the contractor to be unsupervised, working without direction and uncontrolled by the client, this would get the contractor his travel and subsistence expenses back again.

That might save him, or her, £5,000 a year.

It might make it more worthwhile to stay with the umbrella company.

Contractor Now Outside IR35

However, it would also take him, or her, closer to being outside of IR35.

This would mean that he, or she, could now work through a personal service company.

Personal service company contractors pay an average of £10,000 a year less in tax than an umbrella company contractor.

There are three main IR35 factors which point to you being caught by IR35 or outside it.

Major IR35 Factors

They are:-

1 Supervision, Direction and Control

2 The Right of Substitution

3 Mutuality of Obligation

IR35 and UK Contractors - Inside or Otsideu

IR35 and UK Contractors and the tax they pay

Right of Substitution Contract Clause

We know, from a previous court case, that you can easily insert the right of substitution into your contract and a named substitute and that the burden of proof is with HMRC to prove that it was a sham.

They could only do that if the client triggered the substitute clause and the substitute failed to show up. That court verdict must have had HMRC gnashing their teeth.

So, of the three main pointers to IR35, putting a right of substitution clause that will never be triggered into your contract would allow you to tick that box.

The umbrella company has just helped the contractor to be outside the Supervision, Direction and Control IR35 factor.

So, the contractor is able to tick off two of the three main IR35 boxes.

Keeping More of a Contractor’s Income

He, or she, would naturally think “Maybe I can get outside IR35 and set up a personal service company so that I could save not just the £5,000 for travel and subsistence but also another £10,000 a year on top of that”.

So, that is the umbrella companies dilemma.

Should they arrange with the agencies and clients to change the contracts fo some of their contractors to take them outside the Supervision, Direction and Control clause?

This would mean that they could still claim their travel and subsistence expenses which might come to more than the monthly fee that the contractor pays to the umbrella company?

Intermediaries Rules for Contractors

Intermediaries Rules for Contractors over IR35

Big Question for Contractor Umbrella Companies

The big question for them is this:-

Will getting contractors outside Supervision, Direction and Control of the client be more likely to get umbrella companies contractors to stay with them or be more likely to show them how it is done and make it easier for them to leave the umbrella and set up a personal service company.

That’s the 64 million dollar question for umbrella companies.

They are going to have to decide, before April, whether they are going to open that box or keep it shut.

They are going to have to decide whether to twist or stick.

That is the umbrella companies dilemma and they need an answer to it well before April.

So, what will they do?

I’m absolutely certain which option they will take – but that is for another article.

Umbrella Company Alternatives

If they don’t answer it correctly, contractors could jump ship to Limited Companies or Offshore Umbrella Companies.

Tax Efficient Limited Partnerships

Tax Efficient Limited Partnerships for UK contractors

 

Finance Bill 2016 – How Contractors Affected by Chancellor

Finance Bill 2015 contractor effects

Finance Bill 2016

So, how will UK contractors be affected by Chancellor George Osborne’s Finance Bill 2016, the details of which he will announce on Wednesday afternoon?

UK contractors felt that they dodged a bullet in the Chancellor’s Autumn statement a couple of weeks ago.

Chancellor’s Leaks and Rumours affecting Contractors

Prior to that there had been statements from the Chancellor, leaks and rumours that:-

  1. He would take away the right of both umbrella company and personal service company contractors to be able to offset travel and subsistence expenses against tax.
  2. He would force clients, who hired contractors for more than a month, i.e. virtually all contractors, to take those contractors onto their payroll. He called these contractors off payroll employees – which shows what he really thinks of them
  3. He, with HMRC, was devising a new online IR35 test. Clients would make contractors sit this new online IR35 test. If they passed it they could operate as normal as contractors. If they failed it they would have to go on the client company’s payroll. HMRC would also keep the results of failed online tests for future reference
Finance Bill 2015 and Contractors

Finance Bill 2015 and how it affects Contractors

Chancellor Osborne’s Autumn Statement

When the Chancellor read his Autumn Statement, most of these were missing.

The only one that was there was only partially there.

He  would still stop contractors who are caught by the Intermediaries legislation (IR35), i.e. umbrella company contractors, from offsetting travel and subsistence expenses against tax.

However, those not caught by IR35, i.e. personal service company contractors, would still be able to offset travel and subsistence expenses against tax.

Chancellor Finds Extra Tax

In a press release, IPSE (ex-PCG) claimed that as a great victory for they, and their members, lobbying efforts beforehand.

This may be true. However, another factor could have been that the Treasury suddenly found an extra £27 billion in tax receipts, which they would get in the next year, meaning that the Chancellor needed less tax money.

This, and the Lords defeat, may have been why the Chancellor changed his mind on Tax Credits.

It may, also, be a reason why he pulled back out the triple threat above.

However, there is a third possibility.

Finance Bill 2015 as it affects contractors

Finance Bill 2016 and its effect on contractors

Anti-Contractor Measures in Finance Bill

That is that he is going to introduce the measure in his Finance Bill which he will produce on December 9th.

Contractors are not out of the woods, or murky water, yet.

It would seem unlikely that the Chancellor will stop personal service company contractors claiming travel and subsistence expenses against tax after saying he wouldn’t a couple of weeks earlier.

Umbrella Company Threat

However, there may be some truth in he second and third threats, i.e. forcing contractors caught by IR35 onto a client company’s payroll rather than using an umbrella company.

That would be an existential threat to umbrella companies.

Good Umbrella Companies Contractors

Good Umbrella Companies Contractors prefer

He may use the Finance Bill 2016 to announce this measure and may use it to announce a new IR35 test which has legal bearing as well.

The life of UK contractors, since IR35 was brought in, has been a constant worry.

December 9th is the next date for contractors to worry about.

Offshore Umbrella Companies Viable Alternative to Limited Companies

Offshore Umbrella Companies Viable Alternative

Viable Alternative

HMRC and Chancellor Osborne have taken away travel and subsistence expenses, as a taxable deduction, from PAYE umbrella company contractors. So, are offshore umbrella companies a viable alternative?

There are over 200,000 umbrella company contractors in the UK.

They pay a monthly fee of over £100 to PAYE umbrella companies, basically just to pay them.

Caught by IR35 Tax

Those contractors in umbrella companies were normally those who:-

  1. IR35 caught,
  2. IR35 Maybe caught them and they didn’t want to take a chance or
  3. they just wanted their admin done and get paid without any hassle.

There are others, still, who unscrupulous recruitment agencies shoehorned into joining umbrella companies. They  just wanted the bung they would get for sending contractors their way by the umbrella companies.

Under the 2010 Bribery Act this is illegal. However, it is well know that this happens.

Umbrella Company Contractors

Umbrella Company Contractors alternatives

Personal Service Company Contractors

Those contractors who operate through personal service companies pay around £10,000 a year less in tax and NI contributions than PAYE umbrella company contractors on average.

This could rise to up to £15,000 now that umbrella company contractors will no longer be able to offset travel and subsistence expenses against tax, from April 2016.

Many contractors will just stay with their umbrella companies as that is all they know. Many of them were not even claiming expenses against tax anyway.

Others will stay because they reckon they IR35 catches them and have no alternative anyway.

Best Umbrella Company Alternatives

Others, who agencies shoehorned into them, or who do claim travel and subsistence expenses against tax in umbrella companies, will have a look around to see if there are any alternatives.

They may make another assessment to see if IR35 really catches them.

Even if IR35 does catch them,, they may seek advice as to how to take themselves out of it by changing their contracts and working practices.

After all, they could be up to £15,000 a year richer if they were not operating through an umbrella company but using a limited company.

Offshore Umbrella Companies as an Alternative

Some may go further and look at using offshore umbrella companies as an alternative.

They could save even more money as those offshore umbrella companies can let UK contractors keep perhaps from 85% to 90% of the money that they earn.

They could keep £25,000 to £30,000 a year more than they could keep by operating through an onshore umbrella company.

offshore umbrella company list

Offshore Umbrella Company List

This will tempt many contractors. After all this adds up over a number of years.

It can make offshore umbrella companies a viable alternative.

For a list of offshore umbrella companies click on Offshore Umbrella Companies for Contractors.

Umbrella Companies Contractors Alternatives After April

Umbrella Companies Contractors Alternatives

Umbrella Companies Contractors Alternatives

Are you looking for umbrella companies contractors alternatives?

Umbrella Companies in the UK are under a severe threat that would be a severe blow to the solar plexus. It would leave 200,000 umbrella companies wondering whether it would be worthwhile staying in an umbrella company or looking for another solution.

The Chancellor has already told us that he is going to abolish the ability of umbrella company contractors to offset travel and subsistence expenses against tax.

Umbrella Company Recommendations for UK Contractors

Umbrella Company Recommendations for UK Contractors

It is mainly contractors who fear that they are inside IR35 who join umbrella companies.

Disguised Contractors in Umbrella Companies

The umbrella companies disguise these contractors as employees of the umbrella company and they deduct PAYE from the contractors’ income.

In all other ways the contractor behaves like a contractor.

The umbrella company performs no other function other than to disguise contractors as employees for tax purposes and pay them accordingly.

They allow for tax deductions like travel and subsistence, pay the contractor and send the PAYE to the taxman.

If contractors were to just pay the IR35 tax they would not be able to claim much in the way of tax deductions.

Tax Deductible Travel and Subsistence Expenses

However, using the ruse, or device, of the umbrella company, they are able to claim certain things against tax.

These include travel and subsistence, equipment costs (e.g. their PC), pension contributions and membership fees of trade organisations.

However, the most important of these is the travel and subsistence that they can claim as deductible.

Conservatives Bashing Contractors Again

However, the Conservative Government, in the guise of Chancellor George Osborne, intends taking it away from them.

To be fair, they are also going to take it away from personal service company contractors too.

They couldn’t be fairer than that, could they?

Umbrella Company Contractors Monthly Fee

Umbrella Company contractors pay a fee of normally over £100 a month for their umbrella company, basically, to pay them.

They must be the only ‘permanent employees’ who their company charge  just to pay their salaries.

It was worthwhile, previously, for contractors to pay that fee because they would get more back in tax-deductible allowances than their month fee.

Doing a financial bean count they still came out on top.

However, a financial bean count, after this, may well show that the money they are paying their umbrella company to pay them, and do their admin, is more than they are able to claim back in tax-deductible expenses.

They may as well just pay the full  IR35 tax. It might be cheaper for them to do so.

Contractors Staying with Umbrella Companies

Some contractors will stay with the umbrella companies. They will be those who are happy to pay the umbrella company to do their admin for them even though they lose out financially.

There will also be those contractors shoved unceremoniously by their unscrupulous agencies into umbrella companies, against their interests, so that the agencies can continue to get ‘bungs’ from the umbrella companies for doing so.

Inducing contractors to join an umbrella company is illegal under the 2010 Bribery Act – but we know it happens.

However, many contractors will be looking for alternatives to umbrella companies.

Here are some umbrella companies contractors  alternatives worth looking at.

Personal Service Companies (Limited Companies)

Although the Conservatives intend to take the travel and subsistence allowance from personal service companies too, there are still lots of other tax-deductible expenses that a limited company contractor can claim.

Indeed, it is reckoned that limited company contractors pay an average of £10,000 a year less in tax and NI contributions than an umbrella company contractor.

So, umbrella company contractors may seek to change their contracts, and working practices, to take themselves outside of IR35.

Many of those contractors using umbrella companies were those who weren’t sure if they were inside IR35 or outside IR35.

They didn’t want to take the chance of an IR35 investigation which may take years and cost them tens of thousands of pounds of back tax and fines if they lost.

However, with these changes to allowances that they can claim they may well be more willing to take a little bit more risk for more rewards.

Tax Efficient Limited Companies

These are similar structures to the common or garden limited companies.

However, they manage contractors income in the most tax-efficient way to give them returns of 85% or more.

Limited company contractors can continue to use their existing limited companies going this route.

An example of one of those, and how they do it, is here – Tax-Efficient Limited Companies.

Offshore Umbrella Companies

Multi-national companies and high net worth individuals, as well s hedge funds, have long used offshore companies to save on tax.

Now contractors are taking advantage of UK tax laws to do so too.

They can get keep 85% or more of their income using these.

For more information see Offshore Umbrella Companies List for UK Contractors.

The contracting world is now very different to the one that we are used to.

Those that plan in advance will be those who will not miss out.

To be forewarned is to be forearmed.

Best Financial Options for Contractors Now

Best Financial Options for UK Contractors

Best Financial Options for Contractors

We look at the best financial options available for UK Contractors.

Retention levels available for contractors

One of the key decisions for contractors is which method to contract through.

This impacts on the amount of your fee you actually keep after taxes, administration and accountancy.

They have put this further into the spotlight following the changes to dividend taxation and travel and subsistence expenses for employees.

However, these changes will have a negative impact on the amount of money that will end up in your bank account.

So, contractors will pay extra amounts in tax and national insurance once the changes come into force.

Below is a summary of the options available and a summary of their position for tax and the likely level of retention a contractor can expect.

For the purposes of the article we will assume that the contractor is a single IT worker, of 40 with a standard tax code and a 12 month contract for £350 per day.

He works 5 days per week and 48 weeks of the year (annual income of £84,000).

This worker spends £8k per year on travel and subsistence.

Self Employed Contractors

There has been no significant impact to the status of a self-employed person. As before, the key obstacle is IR35 (and the rules are going to be subject to revision).

So, a self-employed person has to pay Income Tax and class 2 and 4 National Insurance.

Other than the deduction of expenses that relate directly to their employment, there are no commonly used methods of tax planning.

In addition, the self-employed person has to either undertake all administration for invoicing and collection.

Plus they also have the responsibility for making payments for tax when they fall due, or engage an accountant to do this.

There may be a large tax bill at the end of the period to settle.

So, the contractor here would retain 67-78% of their income.

Limited Company Contractors

The ability to use dividends is a key element in tax planning for those contractors who operate Limited Companies.

Dividends are taxed at a much lower rate than salary. There is currently an effective rate after tax credit of

  1. 0% up to £31,785,
  2. 25% above this up to £150,000, and
  3. 30.56% on any earnings above £150,000.

Going forward the removal of the tax credit on dividends will result in dividends being taxed at 10% up to £31,785.

Although there is a £5,000 tax-free dividend allowance.

They will tax them at 32.5% above this up to £150,000. They will aslo tax them at 37.5% on any earnings above £150,000.

So, this change will have a huge impact on contractors that operate a Limited Company. The benefit of making drawings in the form of dividends rather than salary has been greatly reduced.

In the 2014-15 tax year, our Limited Company contractor could retain 72.92% of their income.

However, moving forward into the 2015-16 tax year this will drop to 65.79% due to the changes in dividend tax.

There will, also, be costs associated and administration associated with the operation of a Limited Company.

There will, also, potentially be the need to control invoicing and collect payments.

Umbrella Company Contractors

Becoming an employee of an Umbrella has been a popular method of tax planning and also reducing the administrative burden for contractors.

The Umbrella will manage all invoicing, collection and taxation matters and pay the contractor their net fee.

By becoming an employee of the umbrella, it enables the company to deduct travel of subsistence expenses. These are not allowable deductions of self-employed workers.

Therefore, in the case of our contractor, using an Umbrella under current rules would provide a retention of 63.96% of their fee.

So, going forward into the new rules for Umbrellas, the retention drops to 59.30%.

Limited Partnerships Compliance with UK Tax Rules

Among the rules they have ensured their compliance with are:

1. Transfer of Assets Abroad Legislation – Chapter 2, Part 13 ITA 2007

2. DOTAS

3. GAAR – Section Part 5 FA 2013

4. IR35

5. Part 3, Chapter 7, ITEPA 2003

6. The newly announced Onshore Intermediaries guidance, 9 July 2015

Best Financial Options for Contractors Summary

So for each of the four options, the expected retention after taxes and fees is as follows:

Route                  2014-15  2015-16

Self Employed        67.78%      67.78%

Limited Company  72.92%  65.79%

Umbrella                   63.96%  59.3%

Tax Efficient Limited Company –  No less than 85%  No less than 85%

So, choose the best financial options for you.

Umbrella Companies Future – Do They Have One?

Umbrella Companies Future now

Umbrella Companies Future

Contractors are asking, now, about Umbrella Companies future after the Chancellor’s summer budget.

In the budget the Chancellor has taken away the ability of onshore umbrella companies to claim tax relief for contractors on travel and subsistence.

This was the main reason for contractors, inside IR35, to be in PAYE umbrella companies.

IR35 Tax and Contractor Umbrella Companies

Contractor umbrella companies sprung up in 1999 when the IR35 tax came onto the statute book.

Very few contractors actually pay the IR35 tax.

From memory, I think that the Government only collect around £12m a year from it which is a tiny amount. It was not worth creating a tax just for that amount of money.

However, what most contractors, who were inside IR35, did was to go into onshore umbrella companies.

Contractors Inside IR35

They paid more tax than their fellow contractors who were outside IR35 and continued to use limited companies.

However, because of the travel and subsistence expenses that their umbrella companies were able to claim on their behalf, for working away from their main office, they paid less than those contractors who paid their IR35 tax.

Estimates show that umbrella company contractors pay, on average, £10,000 a year more in tax than those who use limited companies. They pay around £20,000 a year more than those who are in offshore umbrella companies.

Estimates show that there are 200,000 UK contractors in umbrella companies. That means that the Chancellor gets £2 billion a year more tax than he used to get if those umbrella company contractors were still in limited companies.

Contractors group, IPSE, claimed that the IR35 tax was a failure because it only brought in £12m a year.

However, they forgot to point out this extra £2 billion a year that the Treasury has been getting from contractors who were inside IR35 but went into an umbrella company instead of paying the IR35 tax.

Travel and Subsistence Tax Relief

Estimates show that they could save around 5% of their income a year on tax relief on travel and subsistence expenses.

So, a contractor on £400 to £450 a day would save around £5,000 a year on tax and relief on travel and subsistence expenses.

So, UK contractors are £10,000 a year worse off in an umbrella company than they would be in a limited company.

However, they would have been £5,000 a year better off than someone paying IR35 or PAYE.

Disguised Contractors

How it works is that umbrella companies disguise contractors as permanent staff. Indeed, they pay PAYE.

However, the umbrella companies passed on the tax relief for travel and subsistence expenses for working away from the umbrella company’s offices at client’s sites.

The Labour Government set up IR35 to stamp out the practice where companies laid off people on a Friday from their permanent jobs and started again as contractors doing the same job.

This was, of course, a ruse to save tax.

The Government saw these ‘contractors’ as disguised employees, which, essentially, they were.

However, the IR35 tax caught more than just those fake contractors it its net. It also caught contractors who had been contracting for years, using limited companies, in its net too.

However, the Labour Government saw the extra money it was pulling in and decided that they didn’t want to ‘fix’ it.

The Tories and UK Contractors

Now, the Conservative Government, who in opposition had pretended to be the ‘friend of contractors’ and who promised to ‘look at’ IR35 again on behalf of contractors if they got elected, have shown themselves to be much worse than New Labour. They were satisfied with the their creation of IR35.

The Conservatives did as they had promised and looked at IR35 again.

However, they decided that, if IR35 was abolished, there was a danger that umbrella company contractors would leave their umbrella companies and start up limited companies again.

Damn right they would have!

Who pays £10,000 a year extra tax when they don’t have to?

The government saw this as a bad thing, though.

It was a no-brainer. Whoever thought that, in times of austerity and Government debt that the Government would hand back £2 billion in tax to people earning a couple of grand a week.

Chancellor Strengthening IR35

However, Chancellor Osborne went even further. He said that he was going to STRENGTHEN IR35 and hired 36 new IR35 Compliance Officers based in Croydon, Edinburgh and Stretford to get more tax from contractors.

The assumption was that it was limited company contractors that he was gunning for.

Umbrella Companies future seemed secure.

Umbrella Company owners fondly imagined that HMRC were in favour of them.

After all, the Government decided to keep IR35 because of the threat of contractors leaving umbrella companies and setting up limited companies.

The Conservative Government must like Umbrella Companies then, right?

Rosy Umbrella Companies Future

Umbrella Companies future seemed rosy.

Umbrella Company owners fondly imagined that HMRC, the Chancellor and the Treasury looked kindly on them.

As one told us “HMRC would rather deal with, and legislate for, a few hundred umbrella companies rather than several hundred thousand contractors”.

The umbrella companies extracted PAYE from their contractors after deducting tax relief on travel and subsistence expenses and sent large cheques, monthly, to HMRC.

If those contractors were in limited companies, HMRC would only get the tax in dribs and drabs and would have to wait till well after their year-end to get it.

Therefore, the Government and HMRC were happy to allow contractors to get that 5% extra in tax relief, weren’t they? Umbrella Company operators saw this as a sop to them.

Onshore Umbrella Companies and Tax Avoidance

They, and their marketing directors, saw offshore umbrella companies as tax avoidance and those who used them as tax avoiders.

They turned their nose up at them.

A part of that was sour grapes, though, as they would have rather have had those contractors themselves.

They saw themselves as on the inside, on the side of right.

It turned out that the Chancellor saw Umbrella companies as tax avoidance too and those contractors who used them as tax avoiders.

How that must have stung!

Disguised Contractors and Tax Avoidance

They were kidding themselves. Whereas IR35 was set up to penalise disguised employees, umbrella companies were setting up disguised contractors, pretending that contractors, who had their own clients, were employees and paying PAYE tax for them.

It was a ruse – a device to avoid tax.

They may not like that but that’s how the Chancellor sees them and their brollies, as the budget showed.

Now, umbrella companies future does not look so rosy.

Umbrella Companies Unique Selling Point

So what is umbrella companies future?

The Chancellor has removed their Unique Selling Point.

Now, umbrella companies future is not rosy. It is hard to see it as a growth industry now.

Will contractors pay a fee to umbrella companies every month just so they will do their admin for them?

The answer is that some might.

With umbrella companies future looking bleak, others will decide that it isn’t worth their while. They may look at changing their working practices and contracts to see if they can operate through limited companies again.

Limited Company Contractors Attacked

However, the Chancellor has attacked limited company contractors too and has taken the travel and subsistence tax relief away from them as well.

He is also taxing their dividends to make it not worthwhile, any more, for limited company contractors to pay themselves in dividends rather than salary.

So what options do UK contractor have now?

What options has the Chancellor left untouched?

What are the umbrella company alternatives?

Offshore Umbrella Companies Option for UK Contractors

Besides limited companies, which are less lucrative for contractors now, there are two main options.

Firstly, there are offshore umbrella companies where contractors can get 85% returns on their money or more.

For more information, or to apply, you should click on Offshore Umbrella Companies List