Offshore Umbrella Companies – How Much Money will I keep?

Posted on March 8, 2016 by admin

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 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 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

Posted on December 25, 2015 by admin

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 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

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

Posted on December 23, 2015 by admin

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

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 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 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 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

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

Posted on December 21, 2015 by admin

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 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 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 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 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 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?

Posted on December 10, 2015 by admin

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 – 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

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

Posted on December 10, 2015 by admin

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 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 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 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 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 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 for UK contractors

Finance Bill 2016 – How Contractors Affected by Chancellor

Posted on December 7, 2015 by admin

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:-

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.
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
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 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 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

Posted on November 30, 2015 by admin

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:-

IR35 caught,
IR35 Maybe caught them and they didn’t want to take a chance or
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 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

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

Posted on November 17, 2015 by admin

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

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

Posted on July 20, 2015 by admin

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

0% up to £31,785,
25% above this up to £150,000, and
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.

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