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Author: Subject: Employment/Tax Advice?
red22

posted on 17/10/14 at 03:46 PM Reply With Quote
Employment/Tax Advice?

I have been working as a Sole Trader for a number of years working for various companies and individuals. However over the last couple of years I have ended up pretty much working for the same company on a self employed basis. Recently there has been some questions over my self employed status.Having checked with the direct gov website, I will admit it looks like I should be more an employee rather than self employed.

Where does this leave me? The company aren't rushing to offer me a contract, neither do they want me to leave. Would I be right in thinking that I can still offer my services by way of being a Limited Company instead of a Sole Trader? And in that case, as I will be working almost exclusively for one company, will that part of my work fall under IR35? Assuming it does, does this mean I will be paying NI and Income Tax at the standard rate for that portion of my income?

Sorry not more car related, but probably need to get my income sorted before I start my next project.

Thanks.

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coozer

posted on 17/10/14 at 04:05 PM Reply With Quote
As a sole trader your tax liability lies with the company paying you, as ltd it lies completely with you.

I couldn't get much work at all as a sole trader but as a PLC it flows in. I mostly work for 1 agency but do get a bit more work of others. Being ltd means they have no liability and just hand over the invouced amount.

Get yourself a good accountant and talk over the options. It works OK for me and as I only work part time being in control of my own tax affairs is a bonus.

Plus your the director and can take advantage of all that that offers...

Good luck,
Steve





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designer

posted on 17/10/14 at 06:16 PM Reply With Quote
I understood that if you worked for the same company, as a sub contracter, you are only allowed to do it for a certain time as the company is 'avoiding' employment taxes.

Had this years ago where a 'subby' plumber had to go onto the books.

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red22

posted on 18/10/14 at 08:44 AM Reply With Quote
"I understood that if you worked for the same company, as a sub contracter, you are only allowed to do it for a certain time as the company is 'avoiding' employment taxes.

Had this years ago where a 'subby' plumber had to go onto the books."

This is what I was begining to think. Looks like I'll be looking for a new job then, as I don't want to be collared by HRMC for anything.

Thanks for the replies.

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iank

posted on 18/10/14 at 09:10 AM Reply With Quote
quote:
Originally posted by designer
I understood that if you worked for the same company, as a sub contracter, you are only allowed to do it for a certain time as the company is 'avoiding' employment taxes.

Had this years ago where a 'subby' plumber had to go onto the books.


That is the IR35 rules, your accountant will know all about it.
http://www.hmrc.gov.uk/ir35/





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Anonymous

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JonnyS

posted on 18/10/14 at 11:37 AM Reply With Quote
The IR35 rules can be complicated.

If you were employed, your employer would be paying Employers NI and you would be paying Employees NI and tax.

As a sole trader you are paying self-employed NI and tax. So HMRC are losing out by the employers NI if you should be an employee. Not as bad as being a limited company and having a low salary and dividend though.

You could set up as a limited company and pay yourself a salary as if you were employed thus HMRC are being paid the taxes they are owed.

Where are you based? I'm a chartered accountant with over 15 years experience based in the Midlands?

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coozer

posted on 18/10/14 at 12:32 PM Reply With Quote
As said go ltd and forget about ir35. I'd never heard of it until I read this thread!





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Theshed

posted on 18/10/14 at 01:29 PM Reply With Quote
Coozer - Wrong I am afraid......IR35 is directed towards Limited Companies - that is the whole point. If, but for an intervening company, a person would be to all intents and purposes and employee, the IR35 rules bite and that person is taxed as if he/she were an employee.
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JonnyS

posted on 18/10/14 at 05:00 PM Reply With Quote
quote:
Originally posted by Theshed
Coozer - Wrong I am afraid......IR35 is directed towards Limited Companies - that is the whole point. If, but for an intervening company, a person would be to all intents and purposes and employee, the IR35 rules bite and that person is taxed as if he/she were an employee.


Well Coozer is wrong if he is saying use a ltd in traditional sense- low salary and dividends, but right if he is suggesting you set up a a limited and pay yourself a salary as if you were employed... HMRC are happy with this and even have a calculator to work out how you should pay yourself to keep within the rules if you are caught by IR35.

http://www.hmrc.gov.uk/leaflets/calc_deempyt.htm

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coozer

posted on 18/10/14 at 07:13 PM Reply With Quote
How am I wrong?

Seems to me IR35 is just an explanation of the rules, which means we all follow them whether working for a company or being self employed or ltd..

I do the work, invouce the agency which sends the money into my business account, get paid weekly as an employee of my company, have an accountant who does my paye, etc, does my tax return, income tax and ni, then pay corporation tax on the profits of the company.

Hrmc have a direct debit on my account and are free to take what they require.

All above board and into my 3rd year now.

Steve

[Edited on 18/10/14 by coozer]





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Minicooper

posted on 18/10/14 at 07:25 PM Reply With Quote
quote:
Originally posted by coozer
How am I wrong?

IR35 does not apply to me.

I do the work, invouce the agency which sends the money into my business account, get paid weekly as an employee of my company, have an accountant who does my tax return, income tax and ni, then pay corporation tax on the profits of the company.

Hrmc have a direct debit on my account and are free to take what they require.

All above board and into my 3rd year now.

Steve




It depends how you operate your business, if you work for one company through the agency, do a normal 35 hour week and work at there premises. Then pay yourself a mininum wage and take the rest as a dividend.

This is when you will fall under the IR35 regulations

If you don't work this way then you will not

It all depends on what and how you work

I have operated as an IT consultant since 1999, due to the uncertainty of IR35, I decided to work within the rules to prevent any future fines and interest

David

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coozer

posted on 18/10/14 at 07:35 PM Reply With Quote
OK, I have 6 agency's on the go (more to come) and go to different company's driving their trucks covering holidays, shortages etc.

Being PLC works very well for me. Much better than sole trader.





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Trollyjack

posted on 18/10/14 at 07:57 PM Reply With Quote
We used to run a haulage company.

we used 1 driver as a self employed basis.
he only worked for us and no one else

The tax office check this guy out and we had to either stop using him or employ him.

we were not offered any alternative point blank.





TrollyJack

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coozer

posted on 18/10/14 at 08:23 PM Reply With Quote
quote:
Originally posted by Trollyjack
We used to run a haulage company.

we used 1 driver as a self employed basis.
he only worked for us and no one else

The tax office check this guy out and we had to either stop using him or employ him.

we were not offered any alternative point blank.


Which company? Potto?





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red22

posted on 19/10/14 at 11:45 AM Reply With Quote
The way I read IR35 is that no matter how many customers I have, if i'm working to the same standards as one of the companies exsisting employees then I should be an employee as then the company are just using my status, whether LTD or ST, to basically avoid paying employers NI contributions.

JonnyS thanks for the reply. I was thinking that would be the way to go just become LTD, but as I wil probably working almost exclusively for one company and it all falling under IR35, then I assume HRMC wouldn't be keen on that as they would be missing out on employers NI contributions.

There was also a passing comment to me, from the company, that if HRMC think I should be an employee they would collect the back employer NI's from the company and they would be recovering them for me.

Thanks.

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craig1410

posted on 19/10/14 at 04:23 PM Reply With Quote
I don't want to single anyone out as intentions are no doubt good but quite frankly there is some terrible advice above based on apparent lack of knowledge of what IR35 is and how it may or may not become relevant.

I'm an IT consultant and director of my own Ltd company (not PLC by the way, that usually refers to a Public Limited Company which is traded on the stock exchange). I have had professional advice about IR35 through membership of http://www.ipse.co.uk and from my accountant and I can tell you that is not straightforward but should definitely be taken seriously. So, my first piece of advice is to get professional advice, even if you have to pay a small amount of money for it. Ignore amateur advice including that of my own below...

If you are a Sole Trader:
1. You cannot be caught by IR35 as there is no such thing for sole traders
2. You may be deemed an employee of your client if your status is challenged by HMRC
3. If deemed an employee then HMRC will recover employers NI, penalty charges and interest from your client
4. If your contract with your client says that you will indemnify them against charges in 3. then you will need to pay them back
5. Whatever happens in 3. and 4. it's usually not good news for your contract with your client

If you have a Ltd company:
1. Your client is no longer liable in the event of an HMRC employment status challenge
2. HMRC can still conduct a status challenge just as if you were a sole trader
3. If HMRC successfully prove that you are a "deemed employee" of your client then they can recover costs from your Ltd company
4. Alternatively, if you declare that your contract with your client is caught by IR35 then 95% of the contract value is considered "deemed salary" and is taxed as such. This essentially removes the tax benefit of using a Ltd company.

There is a lot more "devil in the detail" but I believe the above covers most of the main issues. More detail here: http://www.contractoruk.com/ir35/can_i_beat_ir35_being_sole_trader.html

Remember what I said about getting professional advice though as my advice above is by no means 100% correct and your risks depend almost entirely on the wording of your contract with your client and (most importantly) whether that contract accurately reflects how you conduct yourself on a day to day basis.

I hope this helps,
Craig.

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JonnyS

posted on 20/10/14 at 05:12 PM Reply With Quote
quote:
Originally posted by red22
The way I read IR35 is that no matter how many customers I have, if i'm working to the same standards as one of the companies exsisting employees then I should be an employee as then the company are just using my status, whether LTD or ST, to basically avoid paying employers NI contributions.

JonnyS thanks for the reply. I was thinking that would be the way to go just become LTD, but as I wil probably working almost exclusively for one company and it all falling under IR35, then I assume HRMC wouldn't be keen on that as they would be missing out on employers NI contributions.

There was also a passing comment to me, from the company, that if HRMC think I should be an employee they would collect the back employer NI's from the company and they would be recovering them for me.

Thanks.


As mentioned above, I was suggesting you treat yourself as an employee of your own business on full PAYE, subject to a statutory deduction of 5%. HMRC are happy with this, although for you, it isn't very tax effective. You wouldn't then need to worry about IR35.

As noted in Craig's useful summary below, the issue of IR35 is still there as a sole trader. I would assume that you probably don't have any formal contract in place with them? If so they couldn't collect the NI, but if you didn't reimburse them, your contract would probably cease...

Tough decision...

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red22

posted on 20/10/14 at 10:13 PM Reply With Quote
Much as I love the ins and outs of the tax system, I'm not a fan of working in grey areas. I think this may be just the kick up the arse I need to go and find something I'd like to do.

Thanks for all the advice.

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craig1410

posted on 20/10/14 at 11:12 PM Reply With Quote
red22, the tax system is FULL of grey areas unfortunately, regardless of how you conduct yourself and regardless of whether you want to be honest or dishonest. As an employee, some years ago, I got a tax bill for 1091 payable immediately and at the same time another for 600 payable via PAYE deduction of the subsequent year all because my employer didn't handle a bonus I received properly via PAYE. I did nothing wrong and yet faced significant inconvenience and pressure from HMRC to pay up.

My IPSE membership (which costs around 220+VAT pa) gives me expert legal assistance and representation if HMRC decide to investigate my tax affairs. I do my best to keep up my end of the bargain by conducting my business honestly and in accordance with the "IR35 friendly" contract templates provided by IPSE. I also ensure that I ACT in accordance with those contracts by not allowing myself to be controlled by my client (eg. timesheets, holiday request forms etc) or accepting employee benefits amongst other things. With those things in place, I am fully prepared to go to the mat with HMRC if they take me on. HMRC aren't stupid though and are unlikely to take me on unless they are likely to win, and win enough to make it worthwhile.

That all said, it sounds to me like you are being treated as an employee and so you should either operate through a Ltd company, and declare yourself "caught" by IR35 or see if you can become an employee of your client. You should weigh up the costs of being caught by IR35 if you go down that route and negotiate with your client to increase your rate to cover any deficit. There is a reason contractors get paid more than employees so don't by shy when negotiating a price that makes it worthwhile for you.

Good luck!

ps. @JonnyS - You said, "As noted in Craig's useful summary below, the issue of IR35 is still there as a sole trader." but that's the opposite of what I actually said. IR35 is NOT an issue with a Sole Trader. However, employment status is always an issue. Perhaps that's what you meant.

[Edited on 20/10/2014 by craig1410]

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JonnyS

posted on 21/10/14 at 06:33 AM Reply With Quote
quote:
Originally posted by craig1410


ps. @JonnyS - You said, "As noted in Craig's useful summary below, the issue of IR35 is still there as a sole trader." but that's the opposite of what I actually said. IR35 is NOT an issue with a Sole Trader. However, employment status is always an issue. Perhaps that's what you meant.

[Edited on 20/10/2014 by craig1410]


What I was doing was merging the two together as your average client puts all these issues under one umbrella (like the pun...). As an accountant, you would get very far being pedantic... Anyway you are quite right

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