Category Archives: Tax Efficient Limited Partnerships

Tax Efficient Limited Partnerships
These tax efficient limited partnerships are the new kid on the block as far as the contractor market is concerned.

Normally contractors use onshore umbrella companies, personal service companies, tax efficient ltd campanies and offshore umbrella companies.

Using limited partnerships the contractor has self employed status.

He, or she, then partners with a limited company that the service provider sets up.

It means, therefore, that they can offer contractors 85% returns on their money.

So, over a number of years this tax saving can amount to some very serious money.

It’s reckoned that they could save £30,000 a year compared to contractors using PAYE umbrella companies.

It could even save them up to £15,000 a year on those using personal servce companies.

[caption id="attachment_510" align="alignnone" width="259"] Tax Efficient Limited Partnerships for UK contractors[/caption]

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.

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.

Umbrella Companies Future – Do They Have One?

Posted on July 11, 2015 by admin

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

UK Contractors Blackest Day Ever – Was it?

Posted on July 9, 2015 by admin

UK Contractors Blackest Day Ever

Yesterday was arguably UK Contractors blackest day ever. Only the day they set up IR35 in 1999 could rival it. IR35 did not affect the majority of UK Contractors, however, like yesterday did.

It was the blackest, blackest day for Umbrella Companies who can no longer claim tax relief for contractors on travel and subsistence.

Umbrella companies’ best ever day was the day IR35 came in. They sprung up after that, disguising contractors as permanent employees so that they could claim tax relief on travel and subsistence for them.

No longer!

Yesterday was their worst ever day and the umbrella company industry will never be the same again.

However, the Chancellor also attacked those using limited companies. It was UK Contractors blackest day too. Read on for the impact of yesterday’s cruel budget on contractors which we got from an expert source.

SUMMER BUDGET 2015: UK CONTRACTORS BLACKEST DAY

The Chancellor of the UK delivered his Summer Budget yesterday. Within this there are a number of matters that will affect contractors. So, the main changes that will have an impact are:

· First of all, they announced a change to the taxation policy on dividends. Previously there was an advantage for those operating a Limited Company to take dividends rather than salary. This was available at a saving of up to 12.5% (on payments up to £150k).

However, the changes in the Summer Budget mean that they will remove the Dividend Tax Credit from April 2016 and they will introduce a new Dividend Tax Allowance of £5,000 a year. New rates of tax on dividend income above the allowance will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

· Secondly, they aimed the other impact at those contractors that are the sole employee of their own company (PSCs). Previously an allowance was available for those PSCs paying employers Class 1 National Insurance on ordinary salary payments up to £2,000.

Umbrella Companies Worst Day

In his Budget, Mr Osborne has now removed access to this allowance for those operating PSCs.

· First of all, a key fact of Umbrella businesses is the ability to offset expenses on travel and subsistence. This enables contractors to reduce their taxable income. It is one of the most widely adopted methods of tax planning in the contractor market.

After first being discussed in the March 2015 Budget Plan, it was announced that this relief is to be removed with effect of April 2016.

· Secondly, IR35 has long been a key area for both contractors and HMRC. It has been the subject of a great deal of scrutiny. Again, the Government have chosen to review this. Although no specific guidance has been given, the likelihood is that this is an area of planning that will be open to a reduced cross-section of the contractor community.

Personal Service Companies Crackdown by Government

Posted on July 8, 2015 by admin

Personal Service Companies Crackdown by Government

Chancellor Osborne, in his Budget today, has launched a fierce Personal Service Companies Crackdown.

He is determined to stop contractors who use limited companies as personal service companies from claiming travel and subsistence expenses against tax.

This personal service companies crackdown is where there is an intermediate between a contractor and a client, e.g. an umbrella company or an agency.

This will, therefore, make it more expensive for UK Contractors to contract.

IR35 Tax Changes

Also, the Chancellor wants to look again at IR35 tax. He is not happy that it is working properly.

When he says that he wants to look at IR35 again we can assume that he wants to strengthen IR35 as he promised in a previous Autumn Statement.

So, he has already hired a 36-strong IR35 compliance team to do this.

Limited Company Dividends

Another area where the Chancellor has hit UK contractors is in the area of dividends.

He has, effectively, raised the tax rates on dividends. This will be a disincentive for contractors to operate through limited companies.

They have, traditionally, paid dividends rather than pay salaries as the tax was lower.

Dividends were not subject to National Insurance as salaries are.

Now that differential has been taken away with his personal service companies crackdown.

He has hit umbrella companies, as well, He has taken away the meagre tax relief on travel and subsistence that they got. Therefore, it is now, financially, hardly worthwhile using an umbrella company now.

Umbrella Company Crackdown by Government

Posted on July 8, 2015 by admin

Umbrella Company Crackdown

The recent Budget is of particular notice to UK contractors because of an umbrella company crackdown by Chancellor George Osborne.

It will call into question the whole umbrella company industry which sprang up since they brought IR35 onto the statute book in 1999.

Those contractors outside IR35 used limited companies. However, those inside IR35 now use umbrella companies.

IR35 Tax

Very few people actually paid the IR35 tax. Figures produced by the Government after a question in parliament show that the tax take from IR35 was tiny.

From memory it was only around £12m a year. That’s not worth the bother legislating for the tax in the first place.

What those contractors who IR35 caught did was to join an umbrella company.

They couldn’t make the savings, nor get the returns, they could through using a limited company that they did previously.

Travel and Subsistence Via Umbrella Companies

However, they were able to claim travel and subsistence as well as a few other expenses against tax.

This generally saved the contractor up to 5% in tax relief – which was better than just paying the IR35 tax.

The contractor is termed as an employee of the umbrella company and they pay his, or her tax for him through PAYE.

So, as they were working ‘away from their main office’ the Umbrella Company was able to claim travel & subsistence for the contractor and get tax relief on it for him or her.

Umbrella Company Crackdown on Expenses

Now, the Government wants an umbrella company crackdown on expenses. They are detailing proposals to restrict the travel and subsistence tax relief for contractors. Those working through an intermediary such as an umbrella company or a personal service company will be affected.

As the contractor pays the umbrella company a monthly fee for processing his, or her, income and obtaining them the tax relief on travel and subsistence, the Government’s umbrella company crackdown appears to obviate the need for umbrella companies in financial terms anyway.

If Contractors are to get no tax relief on travel and subsistence by using an umbrella company, many of them will be asking what they pay the monthly fee for.

No Financial Benefit by Using Umbrella Companies

Some contractors will be happy to pay the fee to get their admin done by someone else.

For other contractors the Government’s umbrella company crackdown means that there is now no financial benefit in using an umbrella company.

They will be looking for other methods of processing their income which will be of greater financial benefits.

They will be looking at:-

Limited Companies

While limited companies are also affected by the Government crackdown on tax relief for travel and subsistence, there are still many other expenses that a contractor can claim.