Freelance/consultant, is self-employed best?

thinkingaboutit

Alright folks, here is my question.

I will be doing some work experience (analysis/research) in a company and they suggested that I go there as a consultant as they do not want to hire me (for various reasons which are irrelevant to my question).

So I was wondering whether registering as self-employed is sufficient enough for this purpose or whether I need to register as something more advanced/complex?

Has anyone else that -probably- works as a consultant gone that route or is anything else advisable? I'm just looking for the simplest arrangement that will allow me to act as a consultant.

steve1980

You can do that as long as you are fully aware that you will have no rights within the company.

Also there is the grey area of are you working for solely one company or are you working for whoever whenever work comes in.

thinkingaboutit

steve1980 wrote: »

You can do that as long as you are fully aware that you will have no rights within the company.

Also there is the grey area of are you working for solely one company or are you working for whoever whenever work comes in.

Steve, thank you for replying.

Yes, I am aware that I will have no rights within the company, I'm only in it for the work experience.

I will also be working only for them, doing some research that they want so that is ok as well. I suppose that doesn't impact on choosing the self-employed route.

Some other things that I've been wondering are:
a) What happens if my expenses are less than my income from self-employment? Since I already have a full time job as an employee elsewhere would it count against the income tax I'm already paying? (I imagine I won't be paying N.I as the income is expected to be insignificant). Is there a benefit for me to claim expenses as self-employed even though my income will be less than the expenses?

b) I am quite wary of the clause on self-employment that I am fully liable for any issues that arise from my work. Is there anything to be concerned when all I'll be doing is providing analysis work (it is related to financial analysis)?

c) Suppose at the end of my work-exp they want to pay me a token/nominal amount, do I need to invoice them? and how do I do that?

Hammyman

thinkingaboutit wrote: »

I will also be working only for them, doing some research that they want so that is ok as well. I suppose that doesn't impact on choosing the self-employed route.

Actually it does impact on it as it most likely doesn't qualify as self employment under HMRC rules. Google IR35.

Some other things that I've been wondering are:
a) What happens if my expenses are less than my income from self-employment? Since I already have a full time job as an employee elsewhere would it count against the income tax I'm already paying? (I imagine I won't be paying N.I as the income is expected to be insignificant). Is there a benefit for me to claim expenses as self-employed even though my income will be less than the expenses?

If your expenses from self employment are MORE than your income from self employment you would get a refund on some of the PAYE. Basically what happens in on the self assessment form you list your self employed income and expenses and gross profit/loss and also your PAYE income along with the amount of PAYE tax paid. The gross of both is added together and the taxable amount is worked out. Then they take off that amount what you've already paid through PAYE and you get a bill/refund for the balance.

b) I am quite wary of the clause on self-employment that I am fully liable for any issues that arise from my work. Is there anything to be concerned when all I'll be doing is providing analysis work (it is related to financial analysis)?

Yes, bucketloads. You are liable to be sued for direct losses of the client or their clients due to incompetence or any mistakes you make.
If I were you, as the amounts are likely to be significant I would form your business as a Ltd Company to limit your personal liabilities. You also want to get public liability insurance - its not beyond the realms of possibility for someone to sue for personal injury if they trip over a bag you leave on the floor.

c) Suppose at the end of my work-exp they want to pay me a token/nominal amount, do I need to invoice them? and how do I do that?

You have no need to invoice them however I'd send a receipt. You need to include it in your earnings.

thinkingaboutit

Hammyman wrote: »

Actually it does impact on it as it most likely doesn't qualify as self employment under HMRC rules. Google IR35.

I'm a bit confused about this as I've read elsewhere that self-employment is sufficient to act as an individual consultant.

If your expenses from self employment are MORE than your income from self employment you would get a refund on some of the PAYE. Basically what happens in on the self assessment form you list your self employed income and expenses and gross profit/loss and also your PAYE income along with the amount of PAYE tax paid. The gross of both is added together and the taxable amount is worked out. Then they take off that amount what you've already paid through PAYE and you get a bill/refund for the balance.

Thanks for this, makes sense.

Yes, bucketloads. You are liable to be sued for direct losses of the client or their clients due to incompetence or any mistakes you make.
If I were you, as the amounts are likely to be significant I would form your business as a Ltd Company to limit your personal liabilities. You also want to get public liability insurance - its not beyond the realms of possibility for someone to sue for personal injury if they trip over a bag you leave on the floor.

The expense of getting insurance (looking at some quotes) is just too high as I won't be even getting that much money from them! I suppose that adding a statement in any non-verbal correspondence (email/paper) that whatever I say is for information purposes only and does not constitute advice etc.etc. as I've seen in emails from others should suffice?

You have no need to invoice them however I'd send a receipt. You need to include it in your earnings.

I guess that would be a simple print-out that I could do at home with my printer? (obviously I'll look up an appropriate template).

Thanks a lot for your advice.

KiKi

thinkingaboutit wrote: »

I'm a bit confused about this as I've read elsewhere that self-employment is sufficient to act as an individual consultant.

Perhaps you misunderstand what you've read. IR35 isn't about whether or not you can be a self-employed consultant, it outlines what HMRC deem to be self-employment. If - according to HMRC's rules - you are not deemed to be self-employed, then you cannot go down this route.

In very broad terms, if you are working only for one company, if they set your work and what you deliver for them, and if they control the work then HMRC deem you to be employed. Any attempt by the company to get around paying tax and NI on your behalf (and your agreement to it) will not be looked on favourably by HMRC and (AFAIK) penalties will be be applied.

Yes, of course you can be a self-employed consultant. But for each job you do, you have to look at the IR35 rules and determine whether HMRC determine you to be SE - not whether you want to be.

The Business Link website outlines some useful questions to help you determine whether or not you're self-employed. Search for IR35 on their website.

The expense of getting insurance (looking at some quotes) is just too high as I won't be even getting that much money from them! I suppose that adding a statement in any non-verbal correspondence (email/paper) that whatever I say is for information purposes only and does not constitute advice etc.etc. as I've seen in emails from others should suffice?

If you make a mistake with analysis and they make a decision based on your work and they lose thousands of pounds worth of contracts, you are liable. Sticking a note in to say that your work isn't worth the paper is written on won't suffice - and really doesn't look very good! It's not an informal website you're commenting on (like on here) - you're being employed to give advice and deliver work for them; that's what consultants do. If you screw up you can't say "well, I did say on an email that you shouldn't take my work seriously". What's the point of them employing you?! They might as well get someone else.

Re public liability, if you spill a drink on a computer, or someone trips on your bag (as the other poster said) - it's not worth the risk, it really isn't.

I work as a self-employed consultant and I paid in the region of £300 last year for my insurance. Which website were you looking at? Simplybusiness.co.uk give a useful comparison, but don't give your real phone number or they will persist in calling you to follow up your quotes.


HTH
KiKi

PlutoinCapricorn

I am confused: you say that you are going somewhere for work experience, but they want you to work as a consultant! Will you be learning or teaching?

There are ways to employ people for a short time: casual worker for example. It is not acceptable to tell someone they must work on a self-employed basis just to avoid paying employer's NI, holiday pay etc. It is the terms that determine the relationship.

It is not always necessary to register as self-employed, if the work is a one-off for example.

Hammyman

thinkingaboutit wrote: »

The expense of getting insurance (looking at some quotes) is just too high as I won't be even getting that much money from them! I suppose that adding a statement in any non-verbal correspondence (email/paper) that whatever I say is for information purposes only and does not constitute advice etc.etc. as I've seen in emails from others should suffice?

No. You would be far better off drawing up "Terms of Business" which effectively becomes a contract between you and the client stating what you are and are not liable for. In mine, I stated I was not liable for cost or losses arising (direct or indirect) as a direct or indirect result of actions taken by me or any of my employees during the course of their duties to the client.

thinkingaboutit

Hammyman wrote: »

No. You would be far better off drawing up "Terms of Business" which effectively becomes a contract between you and the client stating what you are and are not liable for. In mine, I stated I was not liable for cost or losses arising (direct or indirect) as a direct or indirect result of actions taken by me or any of my employees during the course of their duties to the client.

That's what I was thinking of, I would hope that something like that would suffice. It unlikely that I'm looking at anything more than a few hundred pounds at the end of this (few months) so I am not sure it's worth paying insurance etc. if I can sort it out with some formal signed agreement. After all, if I have to go down the route of insurance and all that I might as well tell them to do it completely for free and avoid all the complexities.

thinkingaboutit

First of all, thank you for taking the time to reply, I appreciate the information you have given me.

KiKi wrote: »

..IR35 issue..

As far as I can read both in HMRC and in Businesslink the IR35 rule applies to those that form partnerships, ltds or do business through an intermediary (e.g. manages services company), not people who work directly with a client.

Businesslink also has a rough bullet point test to check whether you can legally consider yourself SE and I fit that description. My understanding is that IR35 is there to catch out people who try to avoid paying NI/tax from both sides (employer and employee) through forming/using alternative legal structures, but in this case I will be paying both in whatever income I get.

If you make a mistake with analysis and they make a decision based on your work and they lose thousands of pounds worth of contracts, you are liable. Sticking a note in to say that your work isn't worth the paper is written on won't suffice - and really doesn't look very good! It's not an informal website you're commenting on (like on here) - you're being employed to give advice and deliver work for them; that's what consultants do. If you screw up you can't say "well, I did say on an email that you shouldn't take my work seriously". What's the point of them employing you?! They might as well get someone else.

Re public liability, if you spill a drink on a computer, or someone trips on your bag (as the other poster said) - it's not worth the risk, it really isn't.

I work as a self-employed consultant and I paid in the region of £300 last year for my insurance. Which website were you looking at? Simplybusiness.co.uk give a useful comparison, but don't give your real phone number or they will persist in calling you to follow up your quotes.


HTH
KiKi

It strikes me a bit odd as I've read many times on reports disclaimers of such nature that absolve the author of all responsibility and that usually suffices to cover them. Don't you think that some kind of signed agreement like Hammyman suggested could absolve me of any repercussions?

thinkingaboutit

PlutoinCapricorn wrote: »

It is not always necessary to register as self-employed, if the work is a one-off for example.

What other ways are there then? aside from getting formally employed.