Switching From Agency or Umbrella to Ltd Company in the Construction Industry

Wednesday May 18, 2016

What Are the New Rules Around Umbrella Companies and Construction Workers?

As you might have heard, the UK taxman is cracking down hard on people working through intermediaries and umbrella companies. HMRC has decided that too many people are claiming to be self-employed, while they're effectively working like full-time employees. They call it "false self-employment, and the sledgehammer they're using to crack this particular nut has to do with the way you claim your expenses. It's going to hit a lot of Construction Industry Scheme workers, leaving them worse off.

In April this year the law around “Intermediaries” changed. An “intermediary” is the legal term for organisations such as umbrellas, agencies and contracting companies. This is going to have a significant impact on the construction industry. In fact, it’s one of the biggest shake-ups of recent times.

Will The Changes To Rules For Agency Workers Leave Me Worse Off?

In a word, yes.

Until this April there had been some tax advantages to getting your work through an umbrella. Provided the umbrella had an “overarching employment contract” with its employees, the sites you were sent to could be classed as “temporary” under HMRC rules.

This meant that you could claim back various expenses such as travel and subsistence while getting to work, and when on site. On the whole this made around a 5 -10% difference in take home pay between working through an umbrella company and straight PAYE.

That’s all been stopped with this change of rules. From now on you won't be able to claim tax relief on your travel and subsistence expenses any more, so what goes out of your wallet for your travel and food stays out – making you substantially worse off,  probably by at least £50 per week on average.

Also HMRC are tightening up the definitions of “self employment” and will be looking to take companies to court if they think they are trying to wrongly classify workers in order to avoid tax or other responsibilities.

Is There A Way To Make Sure My Weekly Pay Doesn’t Go Down?

For workers in the construction industry, the way to make the best of this is to set yourself up as a Limited Company.

Not only does this get you out of the whole sticky legislative mess surrounding umbrella companies, but it can also line you up for a lot of other savings and tax reductions.

The thing is, getting set up and registered takes a while. You're already going to be worse off under the new rules on a week-by-week basis, and it's only going to get harder as time goes on. The sooner you get your paperwork squared away, the less it's going to cost you in the long run.

What Do I Need To Set Up To Get CIS Work As A Ltd Company?

To get CIS work on a site as a Limited Company, you're going to need some documents - and some of these you can't get until you've got the document you need before that. It sounds like a bit of a puzzle, but don't worry, we're here to make sure you get it all done in the right order to get you set up as quickly as possible.

When you get work on a site you will need to provide the following documents:

Company Unique Taxpayer Reference number.

• Must be registered for CIS.
• Must be a Company UTR, not a personal one

Your Company Registration number.

• You must be a Director of the Limited Company for this.

Proof of Public Liability Insurance.

• Must have a valid from and to date
• Must have a breakdown of cover.
• Cover must be for the company (not individual cover).
• Business description must cover the work undertaken.
• Must show your full company name.

Proof of Bank details.

• Bank statement/letter or bank card.
• Must show sort code, account number, company name and bank name.

VAT certificate, if applicable.

Health and Disability declaration.

How Long Does It Take To Get Set Up?

With all this to deal with, it can take several weeks to get everything organised. Honestly, even opening a business bank account for your new Limited Company can take a couple of weeks! Everything needs to be handled before you can take on any CIS jobs through your Ltd Company, so time wasted is money lost.

Don't expect to be able to accept a job for next week as a Limited Company if you aren't set up yet. It may cause problems with you getting paid on time if the construction company thinks they are going to be paying an invoice to your Ltd Company and it doesn't exist!

What Do I Do Next?

Get in touch with us at RIFT Accounting today and we can start the ball rolling to set you up as a CIS-registered Limited Company. We can:

• Increase your weekly take-home pay.
• Look after your quarterly Flat Rate Scheme VAT.
• Sort out your refund at the end of the tax year, putting an average of £2000 back in your pocket!
• Handle your Construction Industry Scheme returns for HMRC.
• Organise your payroll (even if the Ltd Company is only you, you need payroll set up to pay yourself through it)
• Complete and submit your tax returns.
• Manage your annual accounts
• Deal with HMRC as your agent.

There’s no need to worry about paperwork, deadlines or keeping up-to-date with all the rules and regulations.

RIFT Accounting are specialists in the construction industry. Let us do the heavy lifting for you, and keep listening for more Voices from the RIFT.