Complicated - sole trader & employee ?

Austinhead

Hoping someone can offer some advice.

a) I have been working for a friend as an employee of her ltd company. Basically I am the only employee and earn very little - below paying tax or NI.

b) I have found additional work, working from home, for 2 days a week. The company I am working for would like me to invoice his business for the work. I am not an employee.

c) I have been offered further work for a 3rd company, for a min of 1 day a week, working from home, again I need to invoice for this work. I am not an employee.

So, my question is, what is the best approach here. I have been told that registering as a sole trader would be the best way to go, and get an accountant to do my tax return. I could probably cease being an employee of a) and invoice them as well if that's necessary.

There is also a possibility of me either buying into business a) or buying it outright, but i'm waiting for some figures. I'm pretty skint so unless they come in very very low that probably won't happen at the moment. I have considered asking owner of business a) if I can put everything through the company anyway, but i'm a little reluctant to mix them all, since b) and c) are unrelated to it and i'm not sure I want her to know how much i'm earning from b) and c)

Any advice you can offer would be great, including info on being a sole trader - good practises, working from home tax benefits, oh and the dreaded tax credits (which currently I get quite a bit as I have 3 kids and my and OH earnings were very low) !!

Thanks in advance.

Annisele

Hmm. First off, you can't just decide whether you are an employee or self-employed. For b) and c), maybe you can arrange things so that it is genuine self employment - but for a), if you're an employee now I think it's unlikely you'd be able to persuade HMRC that you were doing the same job but suddenly became self employed.

DirectGov publishes some information on the point. Looking at that, are you sure that you'd be an employee with b) and c).

Austinhead

Thanks for the replies and the links.

Am confused about the "you can't decide whether you are an employee or self employed" part.

For b) and c) I will NOT be employed and have been asked to invoice the companies for payment of my services, it's IT work so would be the same as any IT contractor. For a) surely I could come to a mutual arrangement with my boss/friend and between us decide that I am no longer an employee and will simply invoice for my services, as for b) and c) ?

Acc72

Austinhead wrote: »

Thanks for the replies and the links.

Am confused about the "you can't decide whether you are an employee or self employed" part.

For b) and c) I will NOT be employed and have been asked to invoice the companies for payment of my services, it's IT work so would be the same as any IT contractor. For a) surely I could come to a mutual arrangement with my boss/friend and between us decide that I am no longer an employee and will simply invoice for my services, as for b) and c) ?

You need to speak with an accountant - unfortunately, it is even more complicated than that !

The Government introduced IR35 specifically for IT contractors doing this sort of thing.

InsideInsurance

Because of the issues others have already said, you would firstly need to check what B & C will accept. Many organisations in IT will not accept sole traders as contractors because of the issues others have mentioned.

If they dont accept sole traders you will need to look into umbrella organisations and Ltd as your structure and your IR35 situation will dictate if the Ltd is worth the effort.

With an umbrella you could switch A into it too as legally you are still an employee

Austinhead

Thanks again.

OK, the owner of a) is an accountant - not that that means everything is above board of course. The person who offered me the job at c) suggested a register as a sole trader, and b) said that it was fine to invoice them as myself. Admittedly I have just accepted a) b) and c) advice/suggestions without any investigation.

Don't think anyone has answered me as to whether I can be an employee of a) AND a sole trader ?

Savvy_Sue

Austinhead wrote: »

Don't think anyone has answered me as to whether I can be an employee of a) AND a sole trader ?

Yes you can.

blue_monkey_2

It's not complicated at all.

As Sue says, yes you can. When you fill in your self assessment you enter the figures from employment and the figures from self employment. You pay tax on the total amount earned for the year and will be given an amount to pay for Tax & NI in a lump sum for the year rather than PAYE.

You might not earn enough in jobs a, b and c individually but when you come to do your self assessment, you may do. Any loss will be deducted from your job as an employee.

You should (for tax credits) do what I do and declare the highest amount you think you will earn and then if you earn less you will get a refund when you declare your actual figures in May/June at the end of the year. This is easier for me than the hassle of having to pay it back.

You should pay your Class 2 NI once you are self employed.

You should double check that your house insurance lets you work from home. Some do not. More Than do and give you cover for stock and business equipment too. If you rent you may need your landlords permission, likewise if you have a mortgage too, you often have to tell them. You should also get Public Liability Insurance too, it does not cost a lot and covers your backside in case someone sues you after you sneeze on them (you know how people are!!).

The Federation of Small Business will also be of use: [URL="wlmailhtml:{88CB9213-D978-4686-8464-99010CD6F613}mid://00000703/!x-usc:http://www.fsb.org.uk/"]http://www.fsb.org.uk/[/URL]

It is not complicated at all, working for yourself and working for someone else can happily work together and the book keeping is really easily. If you want to claim all you can claim, then you'll need an accountant for that, but the basics are really easy to do otherwise.

Benefits for working from home depend on the type of work you do and how much of your house you use for the business. I do not claim a huge amount, I am sure there are people who claim for loo roll and milk and stuff like that, but I don't.

If you decide to buy the business you WILL need an accountant to go over the books for you. Your employer might well be paying you £200 a week and it look like they are earning but they might be paying you out of their own money and things might not look as good on paper as they can appear.

InsideInsurance

Austinhead wrote: »

The person who offered me the job at c) suggested a register as a sole trader, and b) said that it was fine to invoice them as myself.

B is the same as C just with C they have reminded you of your legal obligation.

You can certainly be an employee with one and a sole trader with other activities

browneyedbazzi

I know a number of IT contractors who have opted to set up limited companies, pay themselves a low basic salary and then receive further payments as dividends from the company - I'm not an accountant so I don't know how/why it works the way it does, but apparently by doing it that way they save a lot of tax (more than the cost of the accountants to set it all up!)

I suppose whether it's worth going that route for you or not depends on how much you'll be billing (they people I know who do it have daily rates around £500)- if you can get a free/cheap initial consultation with an accountant it would be worth asking about.

InsideInsurance

The Ltd company route is only really worth its while if you are going to be outside of IR35, ie you really are considered an independent service provider and not an employee in disguise. If you are inside or outside of IR35 is not black or white as it is a blend of contracts, working practices etc that make the decision. In the past HMRC have really only picked on those that were easy cases for them to win, for example a key point is one of substitution - can the limited company supply a different contractor or does it have to supply you, so HMRC picked on contractors for the MOD who need high security clearance for them to be able to work for them. The contractors contracts said they had rights of substitution but the MOD when challenged said they'd not allow it because of security thus making the contract out to be clearly a device for tax avoidance.

It works with lower tax as you pay your minimum wage to make your NI contributions, if you have a partner that doesnt work you could pay them a small salary below the tax bands. Then the rest is taken as dividends, dividends attract capital gains tax rather than NI or income tax which is both lower and there is also another tax free allowance, add your partner as a minority shareholder again and again you get another tax free allowance.

There is insurance out there to cover you from both general investigations and explicitly IR35 with the later also covering any fines or back tax your are found liable to pay.