Software contractor vs own ltd company and IR35. Am I right ?

[Mike10]

Hi Guys,

I am running a small startup and working full time. The startup is a software company.

Now I am thinking about leaving the regular full time job and get some contract (now I am getting 43k a year while for a contract I can get £350 - £500 per day).

I wanted to get a contract under my ltd company, as most of the profits would go towards marketing and business expanses. Basically I want rent out one of the assets


However I have checked and looks like there is some issue with IR35.

I never worked as a software engineer contractor, so I am not sure how common is to sign up the contract with ltd company own by the contractor.

The company is legit and has own product & services, I guess legally it shouldn't be a problem to provide contracted service for i.e. 3-6 months, as this is something that business can do.

I would be paid by my own ltd company (PAYE + NI), however most of the revenue would be used towards business expanses.


Am I right thinking that IR35 would hit me if I would be working as an employee for longer period of time (> 12 months ?) as how HMRC could prove that my company is just not providing software development services to the 3rd party company.

This is not an umbrella company, just legit business (main reason why I was working now full time and main reason why I want to find some contract as the business could get even up to 3-4k more on expanses (marketing and contracting own contractors)).

 

[mattk]

Firstly, all companies will likely require you to be incorporated as a limited company or work under an umbrella company, so to answer your question, it is very common.

The HMRC has an IR35 tool, however, it is the responsibility of the contracting company to determine whether a role falls within IR35, as they are responsible for tax and NI if HMRC determine a contract should have been within IR35. Therefore you will see on most job ads whether a contract role is considered inside or outside IR35. As a rule of thumb, most public sector IT contracting roles are inside and most private sector are outside.

Length of time is not a consideration for IR35.

You say your company is a software company, do you do software development (or other services) to other clients or is it internal to yourself, as this can help your case of being outside IR35?

 

[Mike10]

Thanks.

UK company is selling access to its own software (SaaS). Contracting would be just an easy way to add some money to the business.

Most of the money would go towards marketing and hiring some 3rd party contractors / paying other companies (there is US corp and EU company along with this, they all supposed to server certain purposes).


Please be aware that any dividends (if we reach US corp milestone) would be going from the profits made on the main product. Contract income should infuse cash but won't be used to pay myself dividends.

It is in 90% investment.

 

[Newchodge]

Thanks.

UK company is selling access to its own software (SaaS). Contracting would be just an easy way to add some money to the business.

Most of the money would go towards marketing and hiring some 3rd party contractors / paying other companies (there is US corp and EU company along with this, they all supposed to server certain purposes).


Please be aware that any dividends (if we reach US corp milestone) would be going from the profits made on the main product. Contract income should infuse cash but won't be used to pay myself dividends.

It is in 90% investment.

Virtually none of that is relevant to IR35

 

[Gordon - Commercial Finance]

Virtually none of that is relevant to IR35

Virtually none? That's not quite accurate Cyndy. Absolutely none of it is relevant...

 

[Gordon - Commercial Finance]

HMRC have tests to determine whether your contracting income is subject to IR35.

Its about whether your work situation is like that of an employee - so you need to consider, do you use another company's facilities (office, equipment etc)? can you decide if and when you want to show up for work? Could you send someone else to do the job in your place? Do you get employee-type benefits such as sick pay and holiday pay?