Last months Autumn statement and the recent draft Finance Bill revealed that contractors working through an intermediary, such as an umbrella, will not be able to claim Travel and Subsistence expenses for ordinary commuting. This is unless they can demonstrate and provide evidence on the lack of Supervision, Direction or Control. It means that most, if not all umbrella contractors, currently under an overarching contract will be affected, and many are currently seeking an alternative way to ‘protect’ their income from the new legislation.
As a result, we’ve been receiving a number of enquiries from umbrella contractors asking to incorporate. But is a limited company the answer for umbrella contractors?
Unfortunately, the answer is not straightforward.
Although the new test on Supervision, Direction or Control is not required for a limited company, the Travel and Subsistence restriction still applies to contracts that are caught under IR35. Therefore, a limited company inside of IR35 will not make any significant difference financially to those who remain with their umbrella.
However, for contractors that are genuinely outside of IR35, the benefit of setting up a limited company has suddenly become even more attractive, especially since HMRC has now confirmed that there will be no changes to IR35 in 2016/17, and the new legislation on Travel and Subsistence will not apply.
‘To be or not to be’ a limited company?
Strictly speaking, providing you can register and charge VAT to your agency / end client; by having a limited company you could be financially better off, compared to an umbrella set up, providing VAT flat rate scheme has been utilised.
However, such monetary gain might be outweighed by the additional administrative burden and statutory obligations that come with a limited company. Please refer to our page ‘Limited vs umbrella’ for guidance on what you should be considering before making the decision.
Our sister company K&B Accountancy Group is currently offering free consultations to contractors that are looking to switch from umbrella to a limited company. Please speak to one of our experts today on 020 7078 0211. For further information on our range of packages, latest offers and to view our blog visit the K&B Accountancy Group website.