Here’s a selection of our most frequently asked questions. If you can’t find the answer you’re looking for, our team are on hand to help.
How much will I take home through my own limited company and is the retention figure on salary calculators accurate?
Many contractors use online income calculators to get an idea of their projected income, which typically shows a projected retention rate between 70% to 80% depending on their day rate. Such projections, including ours, are generic and do not take into consideration the contractor’s other income outside of the PSC, and are based on the assumption that contractors would take out the entire profit immediately. However, the advantage of having a limited company is that it gives you the opportunity to plan for your tax, as personal tax liabilities do not crystalise until contractors extract the funds from their business. Consult your accountants and financial advisors for tax planning advice in order to make your contracting income more tax efficient, and if possible, plan ahead.
How do I know if I am IR35 compliant?
The best way to be sure whether your contract falls inside or outside IR35 is to have it reviewed by a specialist, such as our associates Bauer & Cottrell. This service is included on our IR35, Essential Plus and Premier packages.
From 6th April 2020, your end hirer will be responsible for determining the IR35 status of your assignment and will issue what is known as a Status Determination Statement. If you decide to challenge the status determination, you will need to put your reasons in writing and your end hirer will need to respond within 28 days.
What if I am inside of IR35, can I still set up a limited company?
Yes, but your company as the intermediary will have to make a payment, called a deemed payment, to you (the worker). Deemed payment is treated as an emolument of / earnings from an employment with your limited company. Your company needs to operate PAYE and pay NICs in the usual way on any salary paid to you during the year, and then work out the IR35 deemed payment at the tax year-end to find out if any additional tax and NICs are due. All our packages include deemed payment calculations if required.
My agency has provided me with a ‘perfectly-written’ contract – is this sufficient to take me outside of IR35?
It is important that your working practices also reflect the terms and conditions of your contract. Should HMRC carry out an Employer Compliance review of your business, they are likely to require evidence from the ‘end user’ or ‘client’ to support the contract. In this respect you may wish to obtain evidence in advance from the end client in the form of a statement.
My agency requires me to indemnify them for any potential claim against them and the end client for AWR. Does that mean I'm operating my own business and outside of IR35?
Not necessarily. Although the determination of whether you’re in scope of Agency Worker Regulation (AWR) has lots of similarity to IR35, AWR is employment legislation while IR35 is tax legislation and they have no bearing on each other. It is worth noting that providing you are outside of IR35, you are likely to be out of scope of AWR as well, as the definition of an agency worker excludes those who are in business on their own account i.e. a genuine business to business / client relationship.
I have ‘opted out’ with my agency, does that mean I am outside of IR35?
Not necessarily. Please note that when a recruitment agency refers to ‘opting out’ they are actually referring to The Conduct of Employment Agencies and Employment Business Regulation 2003 that has no real bearing to IR35, as it is a tax legislation. Our opinion is that operating inside or outside the regulations will be an IR35 neutral point, and any potential opting out effects from IR35 should be disregarded.
How much, and how quickly, can I incorporate a company?
At K&B Accountancy Group, all of our packages include free same-day incorporation provided we have all the necessary information and documents before 12-noon.
What if I want to change my company name after it has been incorporated?
The company and its directors’ details, including name and address, can be changed after the incorporation. A small administration fee may be payable to Companies House for this service.
Do I have to appoint a company secretary?
Please note that under Companies Act 2006, it is not a statutory requirement to have a company secretary.
Is it beneficial to include minors as shareholders so that I can distribute dividends to them?
For children under 18, the dividends they receive from your personal service company will be taxed as if you had earned the money.
Why do I need a company bank account?
Although you own and control your company, it is a separate legal entity from you. Hence, it will require its own business bank account as the funds belong to the company until it is distributed to you.
Do I have to register for VAT?
VAT registration is voluntary providing your company’s projected turnover does not exceed the registration threshold of £82,000 (for 2015/16).
What is the VAT Flat Rate Scheme?
Usually, how much VAT a business pays or claims back from HMRC is the difference between the VAT they charge customers and pay on their purchases.
With the Flat Rate Scheme:
- You pay a fixed rate of VAT over to HMRC.
- You keep the difference between what you charge your customers and pay over to HMRC.
- You can’t reclaim the VAT on your purchases – except for certain capital assets over £2,000.
Is everyone eligible to use the Flat Rate Scheme?
No. You cannot use the Flat Rate Scheme if your projected turnover exceeds £150,000. If you are already on the scheme, you must exit if your turnover goes over £230,000.
How will I know which VAT flat rate I should use?
VAT flat rate percentage is determined by industry. Please refer to our Tax Rates and Allowances guide for more information.
Why do I have to register my company as an employer for PAYE, even though I do not hire staff?
Providing that you pay yourself a salary and/or claim expenses from the company, you must register your company as an employer so that HMRC can provide it with an employer reference number (for payroll and P11D purposes).
What is RTI payroll?
RTI means having to make online submissions each time you pay yourself or your staff a salary instead of reporting to HMRC on an annual return. A financial penalty may be incurred for missing RTI so it’s important for all companies to keep up to date. At K&B Accountancy Group, RTI payroll is included in our service.
When should my year-end accounts be filed at Companies House?
Your year-end accounts are due at Companies House nine months after your company’s year-end.
When is Corporation Tax payable?
Your Corporation Tax payment is due to HMRC nine months and a day after your company’s year-end.
What expenses can I claim?
The rule of thumb is that expenses must be “wholly, exclusively and necessarily” incurred to carry out the day-to-day running of your business. Examples may be business travel expenses, insurance, accountancy fees, computer hardware and software, telephone, stationery, home office, training, etc. Please refer to our expenses guide for more in-depth information.
Does it matter if I’m not local to your firm?
Not at all. You can reach us by phone, email, web, and through our cloud accounting portal IRIS Openbooks, which has been specially designed for accountancy on the go. However, you’re always welcome to pop in to our Canary Wharf office for face-to-face meetings with our accountants.
I would like to change accountancy firms; when and how can I switch to you?
You can switch to us at any time during the financial year. All you need to do is appoint us as your new accountancy service provider. Then we’ll liaise with your current accountant to make the transition smooth and hassle-free. We’ll also carry out a detailed review of your accountancy and tax position, ensuring all your books and records are up to date.
What’s more, if you’re unhappy with your current contractor accountant, the last thing you need is a long drawn-out process when trying to switch. This is why we’ve made the changeover process simple, straightforward and FREE so you can enjoy our dedicated, impartial and compliant accountancy services without having to worry about the cost and hassle that has traditionally been associated with changing accountants.
What is the Managed Service Company legislation?
If you provide your services to end clients through an intermediary company, which is controlled and run by a third party service provider, then Managed Service Company legislation may apply. If it does, you must comply with this legislation rather than IR35. In order for a company to be considered as a Managed Service Company (MSC), the following requirements must be met:
- The company’s business must consist wholly or mainly of providing direct or indirect services of an individual to third-party clients.
- The individual supplying their services to the third party client receives payments from the service company equal to the greater part of the sums received by the service company from the client for the services provided by the worker.
- The payments received by the worker are greater than what they would have received if all of the payments were treated as employment income of the worker relating to an employment with the service company.
- For this condition to be met there must be a person termed as an “MSC provider”, and that person must be involved with the company. To be an MSC provider, a person must be promoting or facilitating the use of companies to provide the services of individuals.