Tricky scenario - can you help please?

new2biz

Hi there.

A bit of a complicated scenario (well to me that is!), I hope you can help . . .
I am currently employed full time (have been with the same company for 12 yrs) but have fairly advanced plans to set up a new venture. The new venture is very complimentary to the existing company I work for as the service I will provide is an ideal fit for existing clients.
My plan is to run the new venture part time initially, while still working for my existing company. They are totally in the picture and I have set up a very good 'preferential' and exclusive rate for them. Further to this, I have happily suggested/offered that the new service can be sold 'as theirs' which will be seen as a positive thing for clients and is expected to increase sales for their core business as well as for my new venture! As a senior member of their sales team, I will sell the new service, along with the rest of their team, to existing & new clients as if it were their own. I would also market to the trade and hopefully gain custom separately also.
The existing employer has very much embraced the idea but is suggesting that I become fully self employed. Nothing has been negotiated or made concrete yet but the basic suggestion is that I would be put on a commission only basis (which I am comfortable with - obviously the % will need to be right) and we would create some kind of contract that provides security for both. I would invoice them for the commission owed. Apparently, I could not claim expenses - like fuel/mileage although I guess I would write this down as an expense for the new business?
I have expressed a concern that although I will have more control, I would be left vulnerable . They have said that they would cover this . . . as mentioned, this is still being discussed but I wanted to get an independent view point on the situation. Do I set up 2 companies - one for the 'consultancy' commission and the other for the new venture? Should I be a sole trader or a limited company? Should I stay as PAYE but also a sole trader/Ltd Co for the new venture? Is there a maximum length of time that, being a self employed contractor/freelancer, I can work/consult for a company?

What I am offering them is a new service with exclusive rates which will, without doubt, help grow their business at no capital cost to them. I am offering quite a lot but although they are a good employer, I do have a feeling that they will take more than give!

I am sure you will have a question or two but it would be great to hear your thoughts please.
Thanks in advance.

chrismac1

The first thing, in my view, to consider before you think about structure is whether you will be genuinely or falsely self-employed in this new venture. There are numerous posts on this issue on this site, 3 key tests:

1. Direction and control
2. Ongoing provision and acceptance of work.
3. Right of substitution

There are loads of other tests - google "IR35" to find out more. Do not take the blurb on the HMRC site about this at face value, they lose most of the IR35 cases in the Courts / Tribunals!

Structure
If you believe you are genuinely self-employed, you can claim a lot more expenses and will typically take home 10% to 20% more than someone else with the same deal on PAYE. Setting up a limited company is worth the extra expense if you have taxable profits above £15k for the year. For new businesses with any significant start-up costs, I normally recommend going sole trader first - because if you make a taxable loss you can claim this against earned income in the tax year and get a repayment of tax paid under PAYE, and also because it's a low-cost way of dipping a toe in the water of self-employment.

then if the venture succeeds, you can set up your limited company knowing that the extra expense and effort is worth it because you're not going to have a sudden about turn 12 months later. Dissolving a company involves more hassle and more fees.

new2biz

Thanks Chrismac!
I see what you are saying - I need to be very clear that I am actually self employed and have the controls etc that anyone self employed would have. I understand a little about IR35 and have a feeling, correct me if I am wrong, that if the work I do for the current employer remains the same (apart from adding on this new service) when I become self-employed, this goes against the legislation? In other words, what I do as PAYE, cannot be done if I changed to Self-employed status - is this right?
Thanks again

perkisc

You do need to be careful if the work you will be doing with the Ltd is exactly the same as you were doing when employed. HMRC may view this as disguised employment. In terms of the length of time you can consult for the same company there are no limits but just bear in mind that if you were to consult for a period greater than 2 years then there may be tax implication as it will no longer be class as temporary employment.

perkisc

Sorry a temporary place of work