New solutions for first-timer contractors

IR35 Test

If you’re just starting out in contracting, you need to look for some new solutions, says David Colom, principal with the London-based accounting firm which specialises in contractors DJ Colom & Co.

The Treasury has for its part insisted that the Government is fully committed to a flexible workforce. ''Yet the Government has erected a barrier to entry into the flexible workforce,'' Colom insists.

The new legislation on managed service companies which was announced by the Government as part of the 2007 Budget has effectively put an end to the use of composite companies by contractors.

Composites Were Useful

A composite company is a specially created company which has individual contractors as its members. These divide the costs of administration and expenses, and then the composite company pays the contractor a dividend and usually a small salary. Composites have existed since the early 90’s when they were invented originally for the use of accounting firms. ''Along the way, the concept became popular for contractors,’’ Colom says, ‘’not because they wished to avoid taxes, but because they wished to share administrative costs and to limit time spent on administration.''

The Government has erected a significant barrier to entry to the flexible workforce.

David Colom-DJ Colom & Co.

The great advantage of composites was that they made it easy for a new contractor to give flexible working a try. Joining a composite made it relatively inexpensive for the contractor to enjoy all of the benefits of this kind of work without a major financial commitment. If , six months later, the contractor decided to go back to permanent employment, the costs were insignificant,’’ Colom explains.

New contractors should talk to professionals and get advice to make the right choices

David Colom-DJ Colom & Co.

Now the costs for entry are much higher. A contractor can either join an umbrella company and become subject to PAYE and national insurance deductions, or the contractor has to form a limited company. ''With the first option, the new contractor won’t get the full benefit of flexible working, and that may put him off,'' Colom points out. ''New contractors should talk to professionals and take advice to make the right choices.''

A Difficult Choice

Or the new contractor can bite the bullet and form a limited company of his own, assuming he’s outside IR35. This will mean an investment of several hundred pound in administration and fees, and, should the new contractor decide not to stick with it, a few hundred more to close it all down.

''Surely this is a level of commitment that many first-timers are not prepared to accept,” Colom says. ''Now you can’t rent a car and try it out—you have to buy the car right from the start.''

It is surely regrettable that in the course of regulating some rogue composite and umbrella companies, the Government has put undue pressure on a perfectly legitimate industry. It remains a fraught question whether or not the new law will generate the tax revenue the Government has claimed, but it will undoubtedly make it more difficult to create the flexible workforce the Government supposedly is promoting.

Published: Wednesday, March 28, 2007

© 2015 All rights reserved. Reproduction in whole or in part without permission is prohibited. Please see our copyright notice. If you want to use any content you have seen on this site then please request our media pack and ask for details of our Content Licencing Service.

Inni Accounts

Readers Comments...

Bookmark and Share

Latest Site Updates

ContractorCalculator: Contracting news in brief – 22/May/2015 ContractorCalculator: Contracting news in brief – 22/May/2015

News this week covers: London’s financial sector; digital skills in demand; Scotland’s market recovers; oil & gas investment; & late payments plans.

Digital and big data contractors increasingly in demand to fill widening skills gaps Digital and big data contractors increasingly in demand to fill widening skills gaps

Contractors with digital and big data skills enjoy increased opportunities, as contracting clients struggle to innovate, says Harvey Nash/KPMG survey.

Contractors in IT and engineering are sought after, as key skills get harder to find Contractors in IT and engineering are sought after, as key skills get harder to find

Contracting opportunities in IT & computing and engineering will rise, as key skills become harder to find, forcing employers to turn to contractors.

Contractors may end up underwriting George Osborne’s July 2015’s Stability Budget Contractors may end up underwriting George Osborne’s July 2015’s Stability Budget

Contractors may end up underwriting the Chancellor’s Stability Budget in July 2015 by losing tax reliefs and being swept up by anti-avoidance rules.



Follow Us On Twitter



Contractor solutions

Contractors Handbook IR35 Report - 15 Years IR35 Test Clever Accounts Accountants Checklist CFSC Left Sky

Contractor solutions

InTouch Accounting

Perfect mix of technology & personal service for only £92 per month.

Clever Accounts

Complete contractor accounting service. 24/7 online access. £69 pm!

Contractor Angels

Take home over 88% from your income. 100% compliant. Calculate now!


The UK’s largest employment organisation - 0% risk, 100% compliance

NA D J Colom Accountants Bedouin Group Mortgages NewsNow
Contractor Insurance Life Insurance


The UK's leading contractor site. Independently audited traffic (ABC) – 135,209 monthly unique visitors.