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Contractors returning to consultancy work should make sure they've got their paperwork in order. Despite changes to IR35 legislation most would still be better off with Limited Company status rather than paying tax through an agency.

The warning comes from JSA - accountants who specialise in working with IT contractors. They estimate there are between 50,000 and 60,000 IT contractors in the UK and an improving market means more people are choosing to leave full-time employment. Because 96 per cent of all IT contracts are now sourced by agencies contractors have to organise their own limited company status or arrange PAYE.

Although the beancounters say 84 per cent of their new signings are "first-timers" they warn people considering returning to contract work that legislation has changed a lot since the late 90s.

JSA said that offshore management companies should be avoided - if the work is done in the UK then UK tax must be paid on it. Contractors should also avoid projects under the direct supervision of the end user if they want to keep their IR35 status.

An alternative to setting up a limited company is using a managed composite company - a company with at least one other director and shareholder.

Contractors should also decide whether they want to opt-in or opt-out of Conduct of Employment Agencies and Employment Business Regulations. ®

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