New contractor payment route

payrollpropayrollpro Trusted RegularRegistered, Working Together with HMRC Posts: 409
Anyone encountered this one?

Client has informed me that a firm of accountants has approached him about a new method of processing contractor payments. He has declined but the gist of it seems to be that he becomes a member of a LLP which takes over all his contracts, billing and receipt of contractor fees. He gets paid as expenses plus a variety of other payments up to 88% of his required take home pay, less a 12% fee for doing all of this. The 12% retention is held back to continue making payments during periods of no work. He still needs his Ltd company which is paid a small sum, which covers the costs of companies house and corporation tax requirements, which the LLP also carries out for him, on payment of a fee (of course), and the overall result is that, apparently, he retains about 80% of his gross fees.

He didn't like the arrangement but is keen for us to find a way to match the outcome and whilst I have run the figures through I cannot see how he can retain 80% of gross fees of around £200k, even using partnership income and profits, especially since he cannot use his spouse's personal allowance to cover some of the income transfer.

Is this a new arrangement, because I have never come across it? Has it sprung up since HMRC moved in on the EBT arrangements and has anyone else encountered it? I'd be interested to know, and have more details. At the tax update Michael Steed made no mention of this type of set-up when he discussed personal contracting and PSC's and I am sure he would have made some comment if it had some merit.

Comments

  • payrollpropayrollpro Trusted Regular Registered, Working Together with HMRC Posts: 409
    Well I left this for three weeks to see if I could garner any comments about it and clearly it is as baffling to everyone else as it is to me. To add to this I have had discussions with the client and pointed out that ignoring the retention publicised by the people who have approached him I can give his an effective tax rate of just under 18%, using spouses personal allowance, CT relief on payroll and the dividend allowance. It will go up a bit after last year but nevertheless I have reservations about any system which can beat that, though I am happy to stand corrected if anyone else has met this, had experience of it, or has clients pursuing it.
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