Menu

For those contractors that are unsure of whether and when to “go limited”, Appytech offers a neat plan to accommodate both.

• Start with a flexible “pay as you go” umbrella service
• Get on-going limited company projections calculated using your actual invoicing data
• Free migration to limited after six months of umbrella (if you want to swap)

So if you’re not sure of how and when to go limited, then go limited when it suits you.

So what’s changing with contracting and limited companies?

One thing the former Chancellor George Osborne disliked more than just about anything else (other than workers being paid less than National Living Wage) was individuals setting up and trading through a limited company (often called a personal service company) for a fiscal gain. In everyday speak that means he disliked contractors trading through limited companies with the sole objective of paying less tax to HM Treasury.

As part of a multi-pronged offensive against flexible workers, HM Government has attempted to make a limited company less attractive by instigating five key measures:

1. Less tax free dividend. The new dividend tax introduced on 6 April limits free dividends to £5,000, the balance falling at an individual’s marginal income tax rate.
2. Restricted use of dividends and expenses. Reform of IR 35 will go ahead (that’s the disguised employment test) to bring it into line with recent reforms that restricted umbrella workers’ ability to offset expenses against income tax. Likely implementation being 6 April 2017.
3. Cashing in your chips. Making it much harder for the owners of limited companies to efficiently dispose of shares on winding up. It is intended that this value is reclassified as dividend rather than capital gain, making it potentially much less efficient to execute, if you intend to remain in a similar trade or activity.
4. Personal data. Your private information will be readily available online, together with your company returns, so your nosey neighbours can quickly estimate how much you earn, or don’t! The site used is called Companies Beta.
5. Public sector. No thank you. It’s suggested that from 6 April 2017 (so the next tax year) that that no contractors working in the public sector (including the BBC and Channel 4) will be able to work through a limited company.

So what can workers do about it?

Three real world suggestions:

1. Take a hybrid approach. Go umbrella and then get plenty of limited company pay illustration based on your first three months actual billing data and your regime (the opportunity for expenses).
2. Look for an alternative. Depending to a degree on your contractual arrangements (so whether you are client direct, or not, and a few other details) it may be possible for you to work through an umbrella type entity that is more of a worker cooperative or mutual organisation. These generally deliver a more comprehensive remuneration package to workers, i.e. better pay rate, particularly for higher earners.
3. DIY limited company. You don’t need to hire an accountant or service provider to run your limited company. For a little investment in terms of time and money, you can use “off the shelf” software packages to set up and run your company. You’ll then see how it works and learn to use the profit and loss account and balance sheet in the interests of your company, and you (as shareholder).

Information about all three options is available from the Appytech team. Give us a call or take a look at our fees and offers page to learn more.

Posted in Limited, Umbrella On August 2, 2016