Seems silly question but what are the advantages to continuing running a limited company if all work is inside IR35 from April 2020. Just considering whether it would be wise to advise all my ltd contractor clients to cease trading at 31.3.20 as cant see any advantages to continue other than perhaps undercutting Umbrella company fees? Am I missing something?
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If the work is inside IR35 then there will be no change, except that your client’s client remits the tax and NI instead of your client.
In my opinion, there is little benefit to retaining the limited company in many circumstances because of accountancy fees, insurance fees, tax investigation fees, accounting deadlines, bookkeeping, fines, retrospective HMRC investigations into IR35 status (1,500 GSK contractors are currently going through this).
Many recruitment agencies will insist on a PAYE umbrella (because they don't won't to process payroll) which probably works out cheaper (around £25/week) and more hassle free (compared with running a limited company, paying an accountant, paying insurance fees, bank charges, MTD software costs, etc).
Might be worth retaining the company if there is more than £25k of retained earnings and the contractor will be bouncing from inside IR35 contracts to outside IR35 contracts.
However if less than £25k retained earnings and most contracts will be umbrella I don't see the point of having a limited company. If a contract is outside of IR35 a brand new limited company can be setup with a business bank account in less than 48 hours.
I think many small accountants are going to lose many clients over the next 12 months as more and more contractors realise having a limited company is pointless. I believe the contractors in the banking and oil & gas sectors are going to be hit the worst.
The more interesting question, in my opinion, will be what % of contractors will close down. I am thinking around 20% - 30% but maybe I am being too optimistic?
Thanks for the reply and exactly my thinking. For the small ltd contractors I think they are just going to walk away from any corporation tax liabilities if they no longer need their ltd companies. Cant believe the effect this is going to have on all industries. Just calculated for one banking contractor he is going to have to nearly double his daily rate just to take home the same amount of money. The bank wont pay the suggested new rate. Crazy times ahead
Why is he having to nearly double his daily rate? As has been mentioned, if the new rules will apply to him, then the existing rules ought also to apply - he should perhaps be grateful that his current tax and NI liabilities are lower than they ought to be.
I appreciate of course that it may be the case that the bank is simply taking the safe option and that IR35 doesn't actually apply at the moment. I know that it's going to be difficult but if contractors are certain that they are outside of the new rules, backed up by professional opinion (or, better still, HMRC 'clearance'), then they need to take a firm stand. Easier said than done, I know.