# Contractor Umbrella Companies



## jampott (Sep 6, 2003)

Bit gutted this morning - back to work to find an email from my current umbrella company telling me they are withdrawing their rather "tax efficient" contractor scheme... (a real shame, as they were a bloody excellent company to deal with, and their product was excellent too!)

I've had a quick look at their main competitor in the field, but the results aren't favourable. A quick look at the sums tells me I'm out of pocket by about Â£7k a year on my current rate / expenses - and whilst I'm philsophical about stuff, I'd rather not drop THAT much cash back to the government if I can help it...

So, does anyone know a good quality contractor scheme that they can either personally recommend, or have indirect experience of? (Friends, colleagues etc)

(please - no debates on whether avoiding tax is the right / wrong thing to do)


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## QuackingPlums (Mar 10, 2004)

I used a company called "Hyperlink" about two years ago - they were ok for the short contract I did but I have since been duped by the "let us hire you permanently" trick, so I haven't used them recently.

I can PM you their details if you like.


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## jampott (Sep 6, 2003)

QuackingPlums said:


> I used a company called "Hyperlink" about two years ago - they were ok for the short contract I did but I have since been duped by the "let us hire you permanently" trick, so I haven't used them recently.
> 
> I can PM you their details if you like.


Yes please - that would be cool 

I must admit, I could be seduced by the "let us hire you permanently" trick too, but they'd have to match (with a salary and benefits package) roughly what I'm earning as a contractor, which is always the stumbling block...


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## vlastan (May 6, 2002)

Tim,

Didn't they offer you the new scheme that they were introducing 1st September? It was meant to be as tax efficient as the old one (this is what they told me).

You may wish to get a quote from http://www.giantgroup.com and see what they can offer.


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## jampott (Sep 6, 2003)

vlastan said:


> Tim,
> 
> Didn't they offer you the new scheme that they were introducing 1st September? It was meant to be as tax efficient as the old one (this is what they told me).
> 
> You may wish to get a quote from http://www.giantgroup.com and see what they can offer.


Nick,

They did (Kinsella) - but until I've seen some detail, I'm fearing the worst, and looked at the scheme offered by Prosperity4 instead... (but you are right, they seem to suggest a 78% takehome, which is a slight drop on the current scheme, but not as much as alternatives...)

I'd love to stay with IFL if I can, though - even if it is just them doing the interaction with me, and passing on the financial side to a 3rd party, because I don't think I've come across another company that is quite so easy and good to deal with...


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## shao_khan (May 7, 2002)

Knowing several people that have had to resort to legal action with Giant Group, I'd stick clear of them.

If you have a browse on tyresmoke this question has been raised recently with some favourable 'offshore' recommendations being made - I just tried a quick search but couldnt find it just now, but the info is definately there.


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## jampott (Sep 6, 2003)

shao_khan said:


> Knowing several people that have had to resort to legal action with Giant Group, I'd stick clear of them.
> 
> If you have a browse on tyresmoke this question has been raised recently with some favourable 'offshore' recommendations being made - I just tried a quick search but couldnt find it just now, but the info is definately there.


yeah, a friend was with Giant, and I know they were nowhere near as "efficient" as the company I was with...


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## justinp (May 7, 2002)

Hi

Why not do it properly and set up a ltd company and have all the money?

Cheers

JustinP


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## jampott (Sep 6, 2003)

justinp said:


> Hi
> 
> Why not do it properly and set up a ltd company and have all the money?
> 
> ...


Ummm.... because it doesn't work like that?

I had a LTD company setup (and in fact still have it) but found it even less tax efficient than Umbrella companies.

IR35 and other government legislation means, if I have a LTD company, I have to "pay" myself 95% of the earnings of that company as "income" - (after schedule E expenses have been deducted)...

When you add in the time costs of actually administering the company, sorting out VAT etc, its a hell of a lot of hassle.

The Umbrella company I was with took ALL of the LTD company hassle away and STILL ensured I got paid 80% of my gross income. No VAT to worry about, no accountants to pay, no business bank accounts - just a simple expenses form.

Prosperity4 look to provide about 72% - so quite a drop...


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## paulb (May 6, 2002)

I don't think you should be trying to avoid tax :roll:


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## jampott (Sep 6, 2003)

paulb said:


> I don't think you should be trying to avoid tax :roll:


Shuddup you!!

Think of it as a public service. If I paid more tax, I'd have to put my rate up to compensate. This would mean higher costs associated with retaining my services, and my (current) employer would need to either absorb the costs or pass them onto their end customers.

Do you want your mobile phone bill to go up???


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## paulb (May 6, 2002)

I'm with Orange - I'm ok...


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## justinp (May 7, 2002)

jampott said:


> justinp said:
> 
> 
> > Hi
> ...


Firstly I donâ€™t know much about umbrella companies, as to me they sounded about as desirable as an endowment mortgage.

From what I can see and umbrella company is for lazy people. VAT is not really that much work is it. Using Giant Group as an accountant and not as an umbrella company works for me, they do all the work, all you need to do is enter a few things into a web form, and they calculate everything else.

As for IR35 I cant see why using an umbrella has any benefit to failing IR35. Are you an employee of the umbrella company? Why not join the PCG, use their draft contract which is a strong case to pass IR35, benefit from the tax investigation insurance, and pay yourself mostly in dividends?

Cheers

JustinP


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## justinp (May 7, 2002)

jampott said:


> Do you want your mobile phone bill to go up???


Do you work in handsets ar networks?


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## jampott (Sep 6, 2003)

justinp said:


> jampott said:
> 
> 
> > justinp said:
> ...


Lazy people? yeah why not... VAT is a hassle I can do without, and all the other company paperwork is a pain too. When you are working away from home, and don't always have all your records in the same place (if you've remembered to keep them at all!) its a nightmare...

I have been a nominal "employee" of my umbrella company. I'd be interested to know your rough calculation, Justin, but this method (with almost zero paperwork, and no LTD co. complications) has netted me 80+% of my gross contract value over the last year. I reckon (counting all your costs etc, plus the tax you pay on salary, dividend and any corporation tax) you'll have netted TOPS about 70-75% - a difference which is quite substantial. Â£5-Â£10k pa in real terms - PLUS no need for me to do any LTD co. paperwork! I wish I'd switched a lot sooner...

So whilst I agree about the laziness element, this particular umbrella made perfect financial sense too...

I'm just trying to find one that will represent similar "value"...


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## justinp (May 7, 2002)

but as an employee of an umbrella I presume you pay income tax and employees national insurance out of the 80%

what about expenses, do these come out of the 80%


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## jampott (Sep 6, 2003)

justinp said:


> but as an employee of an umbrella I presume you pay income tax and employees national insurance out of the 80%
> 
> what about expenses, do these come out of the 80%


Ok, put simply...

Gross earnings of Â£X pa

declare salary of Â£Y pa (low - about Â£15k a year) and this is PAYE - so tax and NI are deducted.

submit expenses of Â£Z per month (accommodation costs for being away, business mileage, and a few "one-off" type hardware purchases etc)

Once Â£Y/12 plus Â£Z have been deducted from Â£X, the remainder is "paid" to me as a forward bought foreign currency "loan" once every six weeks.. I lose a little in the currency conversions, but was 100% "legal" - and no tax is demanded on that payment.

So - I pay tax / NI as if I was earning Â£15k PA, I also pay the "costs" associated with currency conversion and payment, and receive about 80% of earnings.

Its been a nice little "tax efficient" system, until now


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## justinp (May 7, 2002)

what is a


> forward bought foreign currency "loan"


?

I think I would rather gamble with passing IR35 than one of the above.


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## Harv (May 12, 2004)

Try safe solutions, very good on expenses and no hassle as well, very low running costs, PM me your e-mail adress and i can send you some more details.

Cheers


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## Chip_iTT (Nov 14, 2003)

justinp said:


> jampott said:
> 
> 
> > justinp said:
> ...


I agree Justin, I have never fallen foul of IR35, just needs the right contracts in place.... don't see why I should pay someone else to do nothing I can't do myself... have never used agencies or umbrellas and have no intention of starting...


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## jonhaff (May 20, 2002)

jampott said:


> justinp said:
> 
> 
> > Hi
> ...


This is incorrect (although it does depend on individual personal circumstances). Ltd companies are more efficient than umbrella Companies and you WILL get more money in YOUR pocket if you follow the rules and have a good accountant. You can claim more expenses than an umbrella (such as travel, stationary, the whole mobile bill regardless if its a personal one, entertainmnet dinners now and then and a large one at xmas) Ive been running a Ltd for 6 yrs and without having to worry about IR35. Also VAT is now EASY using the flat rate scheme (for IT contractors customs will be paying you money not the other way round) which is also very easy to work out without having to keep a track of expences and VAT paid on it.


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## justinp (May 7, 2002)

I had forgotten about the flat VAT rate, unfortunately my company is not allegeable as we have 2 software contractors, my brother and myself. We did look at splitting apart, but decided there were more benefits being together.


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## jampott (Sep 6, 2003)

Irving / Justin - if you can tell me you take home 80% of your gross income, after all costs and taxes, then fine...

There aren't enough hours in the day for people to do EVERYTHING for themselves. If I want to know about the current news, I don't get in a plane and fly around surveying what is going on - I switch on the telly or pull up the internet and read what someone else is reporting.

When it comes to running my business affairs, I tried it, and found that not only was it fraught with paperwork and all sorts of associated hassles, but that it wasn't as profitable as a properly designed scheme. LTD companies are designed to act as a company. (Some) umbrella schemes are designed to maximise your take home pay. These are two completely different end goals...!!

If you can show me a system which takes 10 mins work a week, and lets me take home 80% gross, I'll reinstate my LTD company (which is currently mothballed) and happily go back down that route...


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## justinp (May 7, 2002)

I actually dont know what % I take home, but I agree a doubt its close to 80%.

What do you do in mobile comms, handsets or networks?


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## jampott (Sep 6, 2003)

justinp said:


> I actually dont know what % I take home, but I agree a doubt its close to 80%.
> 
> What do you do in mobile comms, handsets or networks?


Neither, really - I work in callcentre design...


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## jonhaff (May 20, 2002)

For me i pay approx 100/mth accounting fees and for this they do all the NIC/PAYE paper work all i do is write a chq every quarter to pay it.
VAT used to be done by Accountant but since the flat rate scheme its so simple it takes 10 mins to do so i do it myself. 
For people that prob only invoice once a month this seems to be the best option (Ltd). I would prob say i take home 70%+ although as you say it hard to work out cos you pay expenses which is in your pocket and then some standard pay and then dividends. 
Its all done to a decent accountant and there are some crap ones out there! you have to go from recommendations.

Callcentre software? I did that for a while where r u working?

Why is having a brother working for you mean you dont qualify for flat rate? did you apply and they declined? have to say that if you do apply then expect a vat investogation either just before or after (if you have nothing to hide then dont worry about these... they are usualy quite good and dont typically find much wrong - in my case he was very insistent i claim more !! as I wasnt claiming part of house bills as I do a lot from home) My argument there was i could be bothered too much hassle and makes for more likely IR investigation which is one you dont wont !

Everyones circumstances are different and its prob best to find a decent accountant then get some free advice from them (they will offer it cos they wont yr business). and go from there.....


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## justinp (May 7, 2002)

> Why is having a brother working for you mean you dont qualify for flat rate?


From what I remember, you only qualify if your company earns less than 100K.


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## bluettone (Feb 26, 2003)

> From what I remember, you only qualify if your company earns less than 100K.


Currently Â£150k I believe.

Marco


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## Chip_iTT (Nov 14, 2003)

I take home after all taxes (corp and otherwise) about 72%, but I am able to put massive amounts of stuff through the company... everything from school stationary to 'office furniture'... you just need a bloody good accountant which cost me Â£1500 a year and includes all my payroll etc. All i do is write a cheque once a month. About the only thing he wont put through the co is the TT cos he reckons its better for me not to.. anyway I reckon thats worth another 10% this year conservatively.

VAT takes me 30min every 3 months due to a) being anal about recording expenses on PDA and b) having it all automated on spreadsheets. BTW, Jonhaff, how do u reckon on IT contractors they end up paying you? Unfortunately my t/o is too large for the flat rate... but I dont recall anything about co size or shape being a criteria...

Another reason for being a Ltd Co is my clients like it... and I have the opportunity to identify pieces of work and hire in resources to meet the clients needs and take a substantial cut off the top.... couldn't do that as an umbrella


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## jonhaff (May 20, 2002)

72-75% sounds about right for me too and you are right the amount you can 'put through' is hard to calc what you have saved but well worth it.

As an IT contractor t/o approx 100K just over depends on how much time off ive had that year !
VAT in my pocket is on average Â£700 per quarter. which in my opinion is well worth the flat rate. (even if you do buy a large item one year you can make an individual VAT reclaim for it anyway). 
Since i only started the flat rate not sure if this amount is part of company income or comes tax free in accoutnign terms?


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## scavenger (Jun 25, 2002)

Jeez, I need to sort my finances out :?

I lose at least 45% (Tax/NI/employers NI) of everything I earn to the tax man as a LTD company contractor. That's excluding corporation tax and accountancy fees.


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## jampott (Sep 6, 2003)

Pete,

if you are too lazy to do it on your own, my existing umbrella company is recommending http://www.kinsellasolutions.com

They have a direct comparison of LTD co versus their umbrella scheme - and whilst the LTD values aren't exactly "fair" (they aren't allowing for any schedule E expenses, by the look of things) they do give a valuable insight.

As an example, an annual contract worth Â£100k would see fees of Â£10k to kinsella, a salary of about Â£31k on which you pay employers, employees NI (totalling about 6.5k plus tax (another 6k).

You'd "take home", therefore just under Â£23k of the Â£31k salary, and the remainder (after the tax, NI and scheme costs are taken into account) is about Â£55k. This is paid to you as an Interest Free loan, on which there is a P11D taxation (benefit in kind) of about Â£1000.

When all is said and done, all the tax paid, and all the fees paid, you'd get back almost Â£78k of the original Â£100k - or 78%

The figures vary slightly depending on your annual contract value, but its still gotta be worth considering... at a conservative estimate, it'd be the equivalent of a 20+% payrise for you...!!

(my previous scheme used foreign currency loans, on which there was no EBT, and which didn't have to be declared on my P11D, and the takehome was ~80%)


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## jonhaff (May 20, 2002)

those umb companies comparisons are always taken with a pinch of salt, they WANT your bsuiness so they make it look like its better than a LTD, but the true figures will always point to LTD as the best option (although marginal) as you are inmore control over your expences (and the fact you may keep some of the VAT you charge ).

Some useful info
http://www.contractoruk.com/
http://www.contractoruk.com/first_timer ... et_up.html
Second link compares LTD/Umb/PAYE


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## jampott (Sep 6, 2003)

jonhaff said:


> those umb companies comparisons are always taken with a pinch of salt, they WANT your bsuiness so they make it look like its better than a LTD, but the true figures will always point to LTD as the best option (although marginal) as you are inmore control over your expences (and the fact you may keep some of the VAT you charge ).
> 
> Some useful info
> http://www.contractoruk.com/
> ...


Maybe - but that also assumes you have a great accountant. As it happens, I didn't. Their spreadsheet was confusing (and my degree is in Business Economics) and they never really tried to maximise my income. I had to do a lot of work myself, and kept having to ask silly questions because they were so poor. It ended up costs me a LOT of money, because I was in the 45% bracket too...

As my accountant is also my Company Secretary etc, I presume it isn't very easy to wrench myself away from them either. If you can recommend someone to take over, and provide me with the kind of service that my umbrella company did, then I'd happily try and save myself some of the 10% costs of the umbrella scheme.

Umbrella scheme is almost paperwork free. No expenses to claim, so no receipts to juggle. No VAT returns to worry about, no company filings or anything like that...

Legislation for LTD company is no so tight, I'd be surprised if it would be significantly better than (say) the 78% I've outlined above. When you factor in the hassle, the receipt keeping, and the several hours a month devoted to handling the company paperwork, I can't honestly see that it is worth having your own LTD company anymore.

I'm serious, though - if anyone knows an accountant that can take over the Co Secretaryship and migrate my LTD company away from the jokers who (didn't) help me run it, I'd strongly consider trying again...


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## scavenger (Jun 25, 2002)

Tim,

Thanks for that info. Reading their website sounds great but lots of buts and maybe's. Does anyone actually use these poeple?

The things you point out really irritate me (paperwork/VAT etc) and I never do any of them. I just gather all the receipts strewn round my place once a year and stick em all in a bag and give them to my accountant (and that is bad enough). She does "stuff" and charges me a grand a year.

I don't have a contract with either my agency (who take 10%) or the client. Any umbrella company would also have to go thru the agent.

I am not trying to avoid paying tax, I would just like to reduce it. Giving the tax man Â£30k a year is pi$$in me off


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## jampott (Sep 6, 2003)

scavenger said:


> Tim,
> 
> Thanks for that info. Reading their website sounds great but lots of buts and maybe's. Does anyone actually use these poeple?
> 
> ...


The reason their name came up, is my current company is closing down their scheme. I was with IFL Group (my current umbrella) since October last year. It has been the "Ronson's" ever since... 

How do you get away with doing your VAT once a year? I got myself behind once, and was in a right old mess. Some stuff got lost at accountants and I missed a month completely. Next thing I knew, I'd been penalised - and again, and again. I ended up costing myself a couple of k in overdue VAT penalties in the end, because once I was a couple of quarters behind, it became too big a job to sort out properly.

This last year without LTD company has enabled me to get back on my feet...

So to answer your question, I haven't used Kinsella, but I have used a very similar scheme, and unless anyone has a better suggestion, I'll be using Kinsella from October...


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## scavenger (Jun 25, 2002)

jampott said:


> How do you get away with doing your VAT once a year?


Sorry, I misled you there. I pay the VAT I have claimed every quarter. I leave it to the accountant to reclaim any VAT at the year end on any purchases I made as I can't be bothered finding the receipts


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## justinp (May 7, 2002)

Iâ€™m not sure if all accounts do this, but I donâ€™t have to submit any fuel receipts for my mileage expenses in order to claim the VAT back. There is a simple algorithm that the account can apply to calculate VAT on fuel based on mileage


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## Matthew (Oct 6, 2003)

jampott said:


> justinp said:
> 
> 
> > but as an employee of an umbrella I presume you pay income tax and employees national insurance out of the 80%
> ...


I'm a self confessed tax idiot - Very lazy so just pay my way and I am sure it's too much. I work for a company who are based overseas but I reside here and get paid in US$ (yes, the rate sucks). I am classed as self employed - IS this something that would be worth looking into for me?


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## jampott (Sep 6, 2003)

scavenger said:


> jampott said:
> 
> 
> > How do you get away with doing your VAT once a year?
> ...


Ahhh - nice system


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## jampott (Sep 6, 2003)

Matthew said:


> jampott said:
> 
> 
> > justinp said:
> ...


Hi Matthew,

As you can see, there are a number of pros and cons. None of us (well me, anyway) are really qualified to give a complete answer - just know what works / doesn't work for us.

There is no charge in looking into it. The downside to any tax efficient system is they can be overturned by the Inland Revenue. If you want something more "safe", try Prosperity4.com - as their scheme is based on expenses rather than EBT, and apparently has full Inland Revenue approval.

These schemes are right for some, wrong for others... but if its prompted you to have a look at your current position and re-evaluate, then thats a good thing


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## justinp (May 7, 2002)

If the IR overturns a tax efficient system, can they come back to you and demand back taxes?


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## jampott (Sep 6, 2003)

justinp said:


> If the IR overturns a tax efficient system, can they come back to you and demand back taxes?


Under certain circumstances, yes (ie if you were breaking the rules etc). Normally they just close the loopholes...

In anycase, a good scheme will provide "insurance" against investigations and ensuing problems


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## justinp (May 7, 2002)

so what have you decided to go with?


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## jampott (Sep 6, 2003)

I've not actually signed on the dotted line yet, but I expect I'll stick with the recommendation from my current umbrella company - the outline is at www.kinsellasolutions.com

Essentially, they pay you the market salary (less deductions) of a software engineer (about Â£30k pa), pay your NI, tax etc and cream their own "profits" off the top. The remainder is then paid to you as an interest free "loan", which (when declared on your P11D) will attract a small amount of tax (a grand or so) but remains NI and income tax "free"...

Overall, I'm looking to take about 77% of my gross income...

The only slightly dubious part of the scheme is that, by rights, any money I earn in the UK should be liable for tax in the UK - regardless of how it is paid. However, the IR have no powers to investigate how much my "umbrella" company receives from my agency, so they can never know my "true" income unless the law changes...

The "expenses" based schemes work in almost the opposite way. They aim to provide as much of your income to you in the form of claimable expenses (sometimes regardless of whether you've actually incurred them). I did strongly consider such a scheme, but have pretty much decided to move from Wales and not effectively "live away" any more, which would drastically cut down the mileage and accommodation costs associated with work (even if I spend the extra on the difference in housing prices!) so wouldn't have been very efficient without telling a lot of porkies anyway...


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## justinp (May 7, 2002)

cheers, I will have a look at their site when I get a spare minute.


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## jampott (Sep 6, 2003)

Cool...

I can't stress strongly enough how great my last umbrella was - and as this is THEIR referral, I'm hoping it will work just as well...

BTW - if anyone is considering joining on their next contract start date (ask me in a couple of months if its living up to its promises!) then drop me an IM, as these places often give quite lucrative referral payments which we can split


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## HardDrive (May 10, 2002)

If the majority of your money is being paid to you as an "interest free loan", at some point in the future you will need to pay it all back and then take a massive tax hit on getting it out again. This loan is also an asset of the company and will be repayable if anyone ever put in a claim against the company that was not covered by insurance or the company was wound up.

This sounds like a very easy way to potentialy lose everything....


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