looking for some info please

totallyconfused1

hi all
been having a look on the forums but cant seem to find anything similar to our situation so thought i'd ask if anyone has any advice. sorry if i'm posting in the wrong area but this seemed the best place.

my husband has worked for the same company for 7 years and loves his job. his boss is a really good guy who oh gets on great with.
the problem is the boss owns a franchise and has recently bought a new business with the hope of building this buisiness up and selling on the franchise he and his wife own. he has asked my husband to basically run the new business for him and started off by saying he would put him on a salary with a percentage of any work coming in also going to my husband.

however he has now came up with the idea of my husband going self employed although he would be working solely for his current boss with the new company.
we both really dont understand the reasoning for him going self employed as i only really see the bad points in it and not a lot of good advantages.

his boss has said he would have to set up a dd for his national insurance for £8 per month which i have found is £2.40 per week but the site i found this on also said earnings over £5716 would be a class 4 national insurance and would have to pay 8% on earnings above this. obviously he would also have tax to pay aswell, which we have no idea how to work out. his boss has told us to roughly put away £22 for every £100 earned for tax....again we cant find any info on this.

our issues are we are renting so would have to wait another 3 years to buy a property.
we genually are really nieve and have'nt a clue what to check for.
at the moment oh is in permanent full time employment and we feel he'll loss the job secuirity in his position.

our main worry is other people have told us if hubby is self employed but working solely for one company then really he isnt self employed is this true?

boss has said hubby will earn more money going self employed and his accountant has said he'll sort everything out yearly for tax for us but we dont want to be doing anything wrong and this is all just to much too understand for us.

sorry the post is so long and random but any advice would be grately appriciated. thanks.

hippyadam

totallyconfused1 wrote: »

our main worry is other people have told us if hubby is self employed but working solely for one company then really he isnt self employed is this true?

Absolutely right there, the inland revenue have sewn up this kind of practice with the IR35 see wiki link here

And in the circumstance you described i think you would be on very dodgy ground if they (inland revenue) realise he has no other source of income into his "business".

totallyconfused1

thank you very much hippyadam for the link.

i do find this all very dodgy as does my husband and really cant understand why the boss is suggesting this

he has told hubby that he can send him an invoice for the new business to get paid and if the new business doesnt have a lot of work he'll then work for the current business and invoice them so he could potentially be invoicing current workplace for 2 weeks work then new business for 2 weeks work!!!! we are very confused about all of this and it does seem very dodgy to us.

both businesses are exactley the same type of work but i think its to risky especially with us not having a clue (not through lack of trying to find out) what is going on.

does this sound dodgy to anyone else or is it just us?

hippyadam

I have friends who work as IT contractors and they have all without exception had to take paid salaried jobs in this last year.

Prior to that they were all operating in this way, Ie they would set up a Ltd co, invoice a company for their time, pay themselves national minimum wage & take everything else out as a shareholders dividend so only paying 10% tax.

The revenue are all over this now & whilst people are appealing rulings etc like everything else with the government it can take forever.... Add to that the fact that if he is a contractor he has absolutely zero protection from employee legislation. He could walk into work one morning & get his marching orders.

No appeal, no explanation. If you are seriously considering this please see an accountant! They will be able to explain far better than i....

totallyconfused1

thanks again hippyadam for good advice

we spoke to the accountant who sorts the boss's stuff out and he said "oh you can earn loads more than you are now" which the synic in me says tax dodging in someway which we dont want involved in. hubby just wants to work and earn a living with nothing dodgy involved.

we are very worried about the risk as you say of hubby going into work one morning and being told to basically "jog on". although boss says his job is secure in his eyes....BUT i believe he will say what he wants to get his own way although he has said hubby doesnt have to go down this route if he doesnt want to. i feel he is trying to make it all sound so easy and that hubby is going to earn loads more....which i have tried to work out and the most he would make extra would be £127 per month by my calculations although i freely admit we both are hopeless with stuff like that,so i could be way out.

have just phoned hubby and told him i dont think its a very good idea and he agrees so we have invited the boss and his wife (who owns the business with him) to our house to discuss where we can go from here and what other options there is. (had to go to their house on saturday night to discuss things as no-one else in the current business knows about the new one,have no idea why!!)

thanks again for the advice.

chalkie99

In addition to the concerns posted above, as self employed he would lose a lot of rights he is currently entitled to such as minimum wage, holidays, sick pay etc., etc. redundancy......... the list goes on.

Sounds like a really bad idea to me, even if it was legit.

Rolo_Tomasi

Just to put you straight on one point. If you are self employed working for one company, it is that company which has to decide whether or not you are genuinely self employed - not you.If they get this wrong, any penalties will be charged on them not you.

Basically, from a tax point of view the self employed pay less tax as does the company that uses self employed workers - which is why the Revenue try to reclassify as many self employed people as employees as possible. Therefore if your husband was self employed, on the same 'salary' as at present his net earnings would be more. You have to weigh against this the loss of employment status which means no holiday pay, sick pay, paternity pay, notice period etc.

totallyconfused1

thank you rolo tomasi i had no idea it fell back on the company, we just don't want to be doing anything wrong.

husband at the minute earns £16640 before tax per year and his boss has said he will raise this to £24960 before tax per year if he goes self employed which for us is an awful lot but as said before its the risks of security we are worried about. we have been trying to find out what he would have to pay as boss and bosses accountant have said set up direct debit of £8 per month for national insurance and open another bank account and put £22 per £100 earned in new account for tax puposes, but we have found the class 1 NI is £2.40 per week but does'nt pay towards state pension or jobseekers should anything happen,we;ve found he'll also have to pay the class 4 NI but it looks like that does'nt pay towards this either. there seems to be a class 3 NI for covering this which is said to be optional. accountant has said he would charge hubby £100 per year to sort out the tax stuff for him.

as i said previously we have'nt got a clue and are scared we do the wrong thing. who would be better to speak to about this an accountant (not the bosses) or a financial advisor. we've never had to think of anything like this and it seems alot to take in.(there again i am blonde :D)

thanks again

Rolo_Tomasi

The tax your husband will pay is calculated exactly the same way ie:

Income minus personal allowance will be taxed at 20% up to higher rate limit (about £43k)

However there will also be scope to set expenses against income which is much more difficult to do as an employee. This will reduce taxable income and therefore the amount of tax paid.

National Insurance is calculated differently. The self employed pay class 2 nic at £2.40 per week and class 4 which is 8% of income above £5,715pa. This compares with an employee who pays 11% of income above £110pw (£5,720pa).

You are right though that it is much more difficult for a self employed person to claim benefits. They are not entitled to contribution based jobseekers allowance (although they may get income based jobseekers allowance) and there are no contributions into the state second pension.

For your discussions you also need to be aware that at present your husbands employer is paying 12.8% employers national insurance to the Revenue on top of what they are deducting from your husbands pay. They will save this if your husband is self employed.

paulwf

Although it isn't the end of the world it is a bit of a pain being self employed and having to fill out a self assessment form...the main issue is it may be more than 18 months from when you starting earning the money before you pay tax on it and it is easy to spend it rather than put it aside. Being employed is so much "neater".

If you invoice for an hourly rate be very careful you are getting covered for sick pay and holiday pay, this is the main reason companies try to switch employees to self employed.