The Chancellor has hammered a couple of the contractor options in his last budget.
Umbrella Companies have been hit hard, limited companies even harder but limited partnerships seem to have escaped his wrath.
The Chancellor intends to take away the tax relief that umbrella company contractors and limited company contractors can claim on travel and subsistence expenses.
Of the other contractor options, limited partnerships have been left largely alone.
The Chancellor has also promised to strengthen IR35. He says that he doesn’t like the way it is working and promises to consult business leaders as to how to make it work better.
The Treasury is only lifting about £12m a year from it.
However, umbrella company contractors pay £10,000 a year tax on average more than limited company contractors.
As there are 200,000 umbrella company contractors, that’s a nifty extra £2bn a year that the Chancellor is getting.
However, it is not enough. He wants more.
He doesn’t like the tax reliefs that contractors can claim whatever vehicle they use.
So, what are the contractor options availabel to contractors?
Limited Partnerships for UK Contractors
Partnerships, which have been used extensively by other professionals, like lawyers, doctors and accountants, have been largely ignored by contractors.
However, Albany have put together a new product whoch sets up contractors as partners, not of other contractors, but of a company that Albany set up.
The contractor is self-employed but is a partner with this Albany company.
As the contractors does no work for the partnership and the Albany company does all of the work, it means that the contractor has no liability.
This relationship doesn’t rely on dividends, so it is largely untouched by the Chancellor.
To find out more, or to apply, click on Albany Limited Partnerships
Limited Companies for UK Contractors
Limited Companies are still a good route for contractors, despite the attack by the Chancellor on their dividends and tax relief for travel and subsistence.
There are still other tax reliefs they can claim to cut their tax bills.
There are a number of companies who use efficient tax planning for contractors, to enable them to be able to retain up to 85% of their money whilst still using their own limited companies.
Onshore Umbrella Companies for Contractors
Onshore umbrella companies were set up after IR35 went onto the statute books in 1999.
It is a ruse to disguise contractors as permanent members of staff of the umbrella company and they pay PAYE tax.
The onshore umbrella companies were able to claim tax relief for contractors for travel and subsistence.
It was not nearly as lucrative for contractors as using a limited company but it was better than paying the IR35Tax.
It enabled contractors to claim back up to 5% of their income in tax relief.
However, the Chancellor has decided to scupper this.
It remains to be seen if contractors will still stump up monthly fees to umbrella companies for handling their income if there is not tax relief on travel and subsistence.
Offshore Umbrella Companies for Contractors
These return more to contractors than any other vehicle that they can use.
They can see returns of 85% to 90% on the money that they make.
There are a number of ways that this is done but the usual one is to take the contractor’s money offshore and then loan them money in lieu of it.
Loans are not taxable.
When the money comes back onshore the contractor would have to pay tax. However, it never does.
The loans lapse on the contractor’s death as debts are not passed on to the next generation.
It is all legal too.
The Government can’t make loans taxable or that would screw up the very lucrative UK banking sector.
If they tried to pass laws making loans transferrable to a new generation they would incur the wrath of voters.
To find out more about offshore umbrella companies click on Offshore Umbrella Companies.
Conclusion on Contractor Options
To sum up the various contractor options, offshore umbrella companies allow contractors to keep most of their money.
Next come limited partnerships and limited companies using efficient tax planning.
Next comes ordinary limited companies used as personalservice companies.
The most expensive for contractors are onshore umbrella companies followed by paying the IR35 tax.