Whether you are starting as a contractor or have been established for sometime it can be a hair-raising experience especially when you hear all the horror stories of IR35 and BN66, EBT’s and HMRC enquiries.

There are 3 alternatives open for you;

Efficient Remuneration Solutions

These solutions CAN provide the answer IF the correct provider is chosen as they offer unrivalled benefits to you. The fact they are located outside of the UK is not to be feared as given the location usually in a UK Crown Dependency ( Isle of Man ,Guernsey or Jersey) this does offer good, solid and safe advantages.

It is key to do your research and ensure the provider is

1. Established - Not just a brass plate or front office operation

2. Is proven, experienced and has a good track record

The Key Questions you need to ask

1. How established is the provider? Check who you are dealing with, ie do some of your own research first. Check companies registry, check google (we can put links in here) If you cannot easily find who the Directors of the solution are, they have something to hide so avoid them.

2. Is the solution an EBT - Employee Benefit Trust - or EBT related ? If so, HMRC are closing this loop hole down and have been since December 2010, so there is no life in this scheme.

3. Is the solution taxed correctly under current legislation? The only compliant solution are based on self employed schemes and also avoids the recent Agency Workers Regulations (AWR)

4. If the solution gives back 80%+ find out where the remaining %age is going? Does the Fee include your self assessment and N.I provision? If they cannot provide a full answer, again they have something to hide so do not touch them.

5.What are the joining / exit fees and minimum length of contract?. Look for a provider that offers no such fees and does not penalise you. Contracts vary in duration so ensure your term is covered and allows flexibility.

6. Check on their payment cycles and record. Very important to you as delayed or missed payments can deprive you of your income.

7. Additional benefits – what are they? Some that may be offered include:- Business insurance / Online ‘real time’ access / Tax Return completion

Pro’s

1. Confidence that your HMRC registration, Self Assessment and taxes are attended to

2. Guaranteed 80% + net take home pay

3. High level of PI Insurances included

4. Expert and dedicated support available to you

5. Online ‘real time’ portal access

6. IR35 and BN66 compliant

7. Fast and effecient payments directly to you

Cons

1. Offshore Solutions are for the mid to high contract earners and are effective from the £40k range upwards. However whilst fully compliant solutions are low risk if you choose the wrong provider the risk increases. It is therefore key that you do your research. We at Contractorspay can help you.

2. Many offshore providers are still using old and out of date employee solutions, maybe through an EBT. These were rendered ineffective in December 2010 by the disguised renumeration legislation brought into place.

3. Not all mortgage providers will recognise the 'income' from offshore solutions, so may not be beneficial if moving house. However long standing well established providers will have good relationships with reputable lenders to avoid this problem.

4. HMRC are constantly looking to close offshore 'loop holes' in the tax legislation and are gaining more powers to do so.

Products have a short term life span. Discipline is the key! You, being the Director, must abide by deadlines set by HMRC and Companies House. Its your responsibility not anyone else's, so make sure you have a good agent that can provide you a full 'hand holding' services! Contractor Accountant specialists are extremely important for running your company efficiently and timely, also making sure you are tax efficient to increase your take home pay!

The following questions should be answered by your accountant before making a decision?

1.Are they a specialist contractor accountant? - This should be clearly stated on their site, however ask anyway.

2.Will you be allocated a dedicated accountant and if so what is their qualification and experience? - You do not want to be repeating yourself, so make sure you are allocated ONE accountant who knows what they are talking about and has plenty of experience.

3.What services are included in the fee? - Again this should be in black and white on their site, if not find out why.

4.If you have specific needs, ie visa applications, please check fees before hand?

5.Will they provide pro active tax advice through out the year? - Your accountant should have their finger on the pulse, make sure they are not too busy to deal with you fully.

6.What guarantees do they offer by way of answering emails, phone calls and letters? - You be sated on their site, if not what are they hiding? Ask some testing questions - What salary should you be taking? if they answer without finding out more about your specific situation, they are a 'one size fits all' firm and will not benefit you. Ask about IR35, test their knowledge.

What will my take home pay be? If they know the answer before asking you questions about your personal income, run a mile! Do they complete full anti-money laundering checks before they act for you? - Believe it or not some accountants do not abide by the guidelines, so avoid at all costs.

Pro's

1. You are in control of your income and expenditure, no one else has access to your hard earned funds.

2. Potential to earn 75-80% of turnover after taxation.

3. Flexibility, you can receive as much or as little as you like.

4. Tax is payable once every year.

5. The Limited Company is a separate legal entity therefore the asset and liabilities are NOT yours.

Con's

1. Deadlines must be adhered to or massive penalties and interest.

2. Taxation legislation is more onerous than other options.

3. Tax is payable once every year, so make sure you have the funds when the tax is due.

Umbrella Solution

Since the MSC (Managed Service Company) was introduced in the 2007, the only umbrella option is a PAYE Umbrella, which effectively means all income is paid as though the contractor is caught by IR35 legislation. Hence the Umbrella route is favoured only by contractors deemed inside IR35. Resulting in at least 10% less take home pay compared to a Limited Company solution.

Pro’s

1. You pass on the responsibility of running your contract to someone else.

2. All taxes are dealt with at source. You do not have to worry about VAT, PAYE and NI.

3. Set up costs are small, therefore favoured by short term contractors.

Cons

1. You are not in control of your funds. Therefore increasing risks that you wont be paid at all by the Umbrella Company.

2. No tax flexibility and little to no costs are allowed against turnover.

3. Delay in receiving the funds. It has to be passed to your provider first.

4. For contractors not caught by IR35 legislation there is a significant (10% at least) higher tax liability - due to the Managed Service Company legislation.

So what solution is best for you? Which one feels comfortable now that you know the FACTS?