The Freelance Thread (Contractor, IR35)

But my limited understanding is that contributions from your LTD co to your personal pension are both

• a company expense so off-set against corp tax
  
  

AND

• you do not get taxed on them personally until you start to withdraw your pension
  
  

So if you really wanted to attract HMRC's attention you could

• pay yourself a pittance in salary
  
• pay yourself most of your earnings as LTD co. pension contributions
  
• whatevers left as dividends or get the LTD co to invest them in something
  
  

^ don't do this you'll get burned - it's proper avoidance

pension as an employee benefit will be NI'd right?

Dunno, look it up. FWIW I do not do ^^ it's not advice. But it's something I've known other contractors to do.

Your 'actual' income tax as a LTD company and as an individual should be about the same (ignoring business costs and VAT refunds) unless you're doing something dodgy...

The perks of LTD are the introduction of business costs/equipment (= more income allowance for you), much less risk as an individual, improved credibility (bizarrely), ease of employing others, ease of finance, potential to sell your business, Int'l billing and the ability to decrease/increase your income year-on-year.

Also ‘entrepreneurs’ relief

That 'Phew!' moment when you walk away from a disastrous idea/investment with your house intact?

Hah yeah

Or that weird tax break where you can (could?) dissolve the company and take everything out at a flat rate of 10%

how do you know so much about tax dodging?

Glad to find this thread. I'm a freelancer who's worked as a PAYE contractor through an umbrella for years but after a break from working, decided I should set up a limited company. Partly to maintain a salary and claim training as expenses in between contracts.

Wish I hadn't. Really don't like the grey areas and flexibility in tax arrangements.

Is the ethical answer simply to pay exactly as much salary as you actually need, claim all valid expenses, make pension contributions, and avoid dividends as far as is possible?

As far as I'm concerned, as long as I'm paying what tax I'd pay under PAYE, that's pretty much legit. A "corporation" of one person paying 19% up front means I don't mind paying less on dividends. I might have got this completely arse-about-face, as is my tendency.

I've talked to a lot of contractors. I do some kind-of mentoring on the financial side of it. But yeah I'm like you in that I don't think it's OK for the government to foot the bill for offsetting the inherent risk and expense that comes with that kind of lifestyle. Even if they only spend the money on bombing people or making their mates richer.

My general advice is rather than feel like you are getting richer by tax dodging, you should be charging much, much more, because chances are you aren't charging nearly enough.

Also charge for set deliverables, or a 'product', not time

My general advice is rather than feel like you are getting richer by tax dodging, you should be charging much, much more, because chances are you aren't charging nearly enough.

This

I left my job at the end of April and now work freelance for the same company as well as others. I'm having some difficulty understanding whether under EU/UK law I fall into the worker category or not. My partner who is also freelance in TV insists that I am a worker under this legislation (one of the companies she worked for makes this point to all their freelancers) however the company I was employed by and now do freelance work for disputes this.

I've done some reading and I'm not smart enough to tell decisively and whether I should be adding the 10.77% holiday rate to invoices or not. The short of it is I work for them on an ad hoc basis, I can't nominate someone to come in to work in my place, I invoice based on an hourly rate.

Hopefully someone here more intelligent and well versed can help me.

Hiscox

Shop around each year - they like to up their premiums all the time, which for PI & EL is like free money to them.

Really don't like the grey areas and flexibility in tax arrangements.

They are as grey as you make them.

My accountants are fairly conservative, which is exactly what I want them to be.

Other a accountants be like "yeah, expense your cat food".

as well as others

Other people do this, or you work at other companies?

If it's other people, it sounds like you are a worker, as most of the tests for self-employment / contractor would be failed.

Sorry that was vague, I mean I also work for other companies.

That makes you more contractory.

Which is good, as you wouldn't be caught by IR35.

In the other circumstance, you could be taxed as an employee, under IR35 (and the employer may be taxed NI etc...) BUT it would be tough to succeed in an employment rights claims.

[Edit] I'm way out of date on this stuff...

You still seem to have an employee relationship with the first company, given the tests.

Which is good, as you wouldn't be caught by IR35.

Be careful. I think this is incorrect. Status is determined on a individual contract basis. The status of other arrangements are not taken in to account when determining the status of specific arrangement.

Ultimately it comes down to Direction and Control. If you cannot provide a substitute, red lights should be flashing.

But anyway, all the risk likes with Lynx anyway - if he doesn't like it, he's going to have to lump it or leave it.

Yes I didn't think IR35 applied to this circumstance, but it's good to have this backed up.

Am I a worker not an employee though because "workers are not employees if they are free, without penalty, to accept or reject any offer of work made to them"?

Either way I should still be adding holiday entitlement at the 10.77% rate to all invoices right?

Cheers for your help with this by the way!

The status of other arrangements are not taken in to account when determining the status of specific arrangement.

Point taken - I wasn't aware of that.

I'll duck out - I'm probably not helping.

I think - could be wrong though - your best option here if they won't accept that you are 'Worker' is to PAYE via an umbrella company.

Thanks Howard. I'd been referring to that .gov page and the only point that might not apply is "their employer has to have work for them to do as long as the contract or arrangement lasts" but I can't be certain I'm not misunderstanding it.

Thanks for your help too, hopefully it doesn't come to needing an umbrella company as I'm not sure it's worth it in terms of effort or probable fallout.

To be clear Umbrella is not the same as your own LTD company.