Providing service through your limited company

[Maggiethecat]

Thinking of offering professional services via limited company, as one option, rather than being paid a salary.

Does anyone do this and is it quite involved? I expect to pay corporation tax and NI? What else can I expect to pay?

I'll try to get an accountant's advice but in the meantime trying to work out if better to go via the self employed/company route or opt for paid salary route.

Do you mean to your current employer? There May be implications for them in terms of your employment status.

@devildeepbluesea - no, not with current employer. There is a company that can employ me to provide professional service to clients as and when required or I can provide the service directly to clients via my own limited company.

Ah I see. Well depending on your turnover could you just set up as a sole trader?

You need the advice of a professional accountant. Depending on what your turnover and profits are likely to be, then either a Ltd company or being a sole trader would be the two options to consider. They will work out which option would be the most tax-efficient for you, and go through what you need to do to register. You might also need to register for VAT.

If you can secure a stream of roles that are comfortably Outside IR35 at a decent day rate, the tax benefits of working this way are materially better than being an employee.

@devildeepbluesea - think it would be a company for the type of freelance work and of course to limit liability.

@chisanunian - I will speak with an accountant

@Blankiefan - I'm trying to get my head round IR35 but gather roughly that if I'm not covering a specific person's job eg mat leave but am picking up overflow work in a busy period, for example, that should be fine.

Day rates seem good but I really need to work out what my actual earnings will be compared to being an employee

You seem to be approaching this as if it is your choice. It isn’t. You need to evaluate what is the nature of the relationship and the person / company that is paying for your. There is guidance and questionnaires on government website that can assist you in evaluating this. An accountant can certainly help you get set up, but they shouldn’t really be making this evaluation for you and I would be surprised if they did.

You are sort of right with IR35 but not entirely, its a bit more complicated than that and depends on things like how and when you do the work, rule of substitution etc
As for your earnings you need to take off 20% for tax as a minimum so 30% to be on the safe side to cover anything else. Also consider that as an employee you get paid holidays, pension contributions and possibly other employee benefits but as a Contractor you will need to make your own arrangements

I agree
Not all Accountants are IR35 specialists and if anyone gets fined it wont be them
IPSE are also a good source of information

I don't understand why you'd be going from the security of a salary to being given work 'as and when'.

I get you obviously think you'll be paid well but would that be for 12 months and ongoing? And if lockdown / pandemic hits again, would that affect that money?

Can you do it alongside your job in the interim so you get 2 X pay?

@Aprilx - to clarify- I have the choice of setting up a company and offering services through this or being employed direct by an intermediary company who will pay salary, PAYE etc but services supplied to third party client.

@Hunderland - it would be flexible working in either case. Pay structure is the question - the company option has potential to be more profitable.

OP I'd strongly agree with posters upthread. IR35 is a minefield. Sadly, I have direct experience of this, despite the (expensive) assurances of a fully-qualified and experienced accountant, who thought he understood all the intricacies of IR35 properly. Turned out he didn’t.

There are also potential risks involved in using the services of an umbrella company, I’m afraid. You need expert advice.

HMRC are onto things like a ton of bricks these days.

I’d add to the IR35 minefield pp are mentioning. I wouldn’t rely on an accountant for advice on this either, you need the contract and working conditions reviewed by an IR35 expert. You also need to be very wary of the MSC legislation when using accountants now too, as this could turn out to be even more of a minefield than IR35.

One advantage to using an umbrella company (and probably the only one imo) is you can salary sacrifice a large portion of your gross into a sipp.

Ps forgot to mention but unless the company you’re providing services to is under the small company exemption then it’ll be up to the client to decide
whether you’re inside or outside IR35. You need to ask the “company” (agency?) setting you up with these clients for proof of this decision (SDS). Unfortunately even with this the client can change their mind under the legislation up until the first payment from the client (which can be months down the line depending on payment terms). Lastly check very carefully for claw back terms in the contract for any taxes i.e. tax liabilities being passed from the client back to you should they lose an IR35 judgement.

@Pilcrow - that’s probably why my accountant hasn’t got back to me yet 🤔

@CantHaveTooMuchChocolate - it does seem a minefield! The government must have been losing out big time.

Tending toward employed model atm despite the appeal of greater income otherwise.

Sympathies, OP, it’s become quite fraught ever since HMRC rolled out IR35 more widely, and god knows it was fraught enough before when it was just in the public sector!

if you want to get an idea of the sort of criteria used to assess the status of workers for tax purposes, google CEST - ‘check employment status for tax’. Contractor Calculator have a good article on it. This is the tool HMRC originally developed to decide whether people qualified as truly self-employed or not. It was intended for use in the building trade and also the IT sector, and was such a blunt instrument that it simply couldn’t cope with people in other, far more specialist/niche jobs which might be anything other than totally standard. There are a lot of us in jobs like that who have had bruising encounters with CEST. It was and remains widely reviled, although they’ve been forced to tweak it to an extent. Nevertheless, HMRC still holds ALL the cards regarding this, not surprisingly.

IR35 has been around since the late 90s for all sectors, the only changes recently were to who decides on the status determination, which moved from the contractor to the client first in the public second more recently in the private sector (with the smaller company exemption). Fundamentally though nothing else has changed, you still need to have the contract and working conditions correct - no direction or control, substitution, no mutuality of obligation, be in business of your own account, etc, etc. Completely agree about CEST, even HMRC say they won’t stand by it’s determination.

Agree with what you say CantHave but arguably it is HMRC's decision to start pursuing far more aggressively and inequitably since 2017 (along with the obstinate heel-digging over CEST) which has caused a great deal of distress and ill-feeling.

In my sector there was a long-established status quo going back many years which HMRC, for reasons best known to itself, abruptly trashed. Many individuals found themselves under investigation despite having made every possible effort to meet every specific criteria HMRC had itself put in place, but found it was suddenly deciding to ignore them.

They have the power to do this, of course, but that doesn’t make it any easier to understand, or agree with.

Best of luck, OP, I hope you get some good advice and decide what to do.

Agree with what you say CantHave but arguably it is HMRC's decision to start pursuing far more aggressively and inequitably since 2017 (along with the obstinate heel-digging over CEST) which has caused a great deal of distress and ill-feeling.

In my sector there was a long-established status quo going back many years which HMRC, for reasons best known to itself, abruptly trashed. Many individuals found themselves under investigation despite having made every possible effort to meet every specific criteria HMRC had itself put in place, but found it was suddenly deciding to ignore them.

They have the power to do this, of course, but that doesn’t make it any easier to understand, or agree with.

Best of luck, OP, I hope you get some good advice and decide what to do.

Agree with what you say CantHave but arguably it is HMRC's decision to start pursuing far more aggressively and inequitably since 2017 (along with the obstinate heel-digging over CEST) which has caused a great deal of distress and ill-feeling.

In my sector there was a long-established status quo going back many years which HMRC, for reasons best known to itself, abruptly trashed. Many individuals found themselves under investigation despite having made every possible effort to meet every specific criteria HMRC had itself put in place, but found it was suddenly deciding to ignore them.

They have the power to do this, of course, but that doesn’t make it any easier to understand, or agree with.

Best of luck, OP, I hope you get some good advice and decide what to do.

Agree with what you say CantHave but arguably it is HMRC's decision to start pursuing far more aggressively and inequitably since 2017 (along with the obstinate heel-digging over CEST) which has caused a great deal of distress and ill-feeling.

In my sector there was a long-established status quo going back many years which HMRC, for reasons best known to itself, abruptly trashed. Many individuals found themselves under investigation despite having made every possible effort to meet every specific criteria HMRC had itself put in place, but found it was suddenly deciding to ignore them.

They have the power to do this, of course, but that doesn’t make it any easier to understand, or agree with.

Best of luck, OP, I hope you get some good advice and decide what to do.

Agree with what you say CantHave but arguably it is HMRC's decision to start pursuing far more aggressively and inequitably since 2017 (along with the obstinate heel-digging over CEST) which has caused a great deal of distress and ill-feeling.

In my sector there was a long-established status quo going back many years which HMRC, for reasons best known to itself, abruptly trashed. Many individuals found themselves under investigation despite having made every possible effort to meet every specific criteria HMRC had itself put in place, but found it was suddenly deciding to ignore them.

They have the power to do this, of course, but that doesn’t make it any easier to understand, or agree with.

Best of luck, OP, I hope you get some good advice and decide what to do.

Apologies for multiple postings, looks like I’ve fallen foul of today's glitch, which I’ve just been reading about on Site Stuff…..

Apologies for the multiple postings - just seen it’s proving a big problem today….

Completely agree @Pilcrow they’ve become far more aggressive and are now targeting clients with blanket campaigns, etc. If you’ve been caught up in any of this I’ve huge sympathy and hope you get things resolved quickly. Prior to the changes they’d had very little success once things progressed to tribunal or court, but most clients are now blanket banning or adding tax claw back clauses to contracts. It’s killing the flexible workforce in this country at a time when they’re most needed.

Op just make sure you have everything covered off legally before progressing with any outside work, good luck.