Employed and self-employed; sole-trader or ltd company for self-employed work?

VC76

Hi all

I have already posted this in the work and benefits section but have read similar posts in this section so thought I'd post here too.

My situation is such that I am still to be working two jobs soon; in one of them I will be employed and in the other I'll be self-employed. What I am trying to work out now is whether I should register as a sole-trader for the self-employed work or set up a limited company. Details below - if anyone could help me to work this out I'd be really grateful. I've spoken to a few accountants already and have got some advice so now just trying to make a decision for myself.

Job 1 (Employed): Three days a week. Salary £23,460. Will be paying into work pension scheme (at 6.8%) and repaying student loan (post '98).

Job 2 (Self-employed): Two days a week. £300 per day, total value of contract £26,400. (Will be working for 44 weeks of the year). Have calculated expenses for the year to be around £4000, so profit on this work is £22,400.

I'm assuming my tax code would still be 810L (although would this be affected by claiming expenses for self-employed work??)

Regarding the limited company option, I've looked into all the issues re IR35 and I guess this is what is making me cautious about going down this route. I'm happy to have my contract reviewed to try and get some reassurance that I would fall outside of this and am aware of the implications if I didn't. What I am trying to work out is whether it would be financially viable for me to go down this route at this point given the figures I am working with - is it even possible to answer that? I probably wouldn't draw a salary from the self-employed work as my tax-free allowance would be used up in job 1. Or is it just a case of me needing to make a personal decision?!

Thanks in advance for your thoughts, help and advice!

VC

PlutoinCapricorn

Are you in the construction trade?

Normally people are advised to start as sole trader, and only incorporate if and when they earn enough to make this advisable, which it seems that you will not. Being a company also protects you by limiting your liability if you can't pay your creditors - for stock for example. It may give you extra 'weight' and credibility.

If you are a ltd. company your affairs and accounts can be inspected by anyone, and you need to file accounts.

Does this job definitely fall under HMRC's definition of self employment or is the employer just trying to escape paying holiday pay etc?

VC76

Thanks for your reply.

No, not in the construction trade. I work in the education sector. I think one of the things that made me look at the ltd co route was that I do have the potential over the coming year to take on other bits of work in a consultancy type role, and this is something I would definitely like to expand on.

PlutoinCapricorn wrote: »

Normally people are advised to start as sole trader, and only incorporate if and when they earn enough to make this advisable, which it seems that you will not

Is there a suggested/advised level of earnings then at which it would be considered worth setting up a company? I've been trying to find an answer to this but have not done so yet!

I do think the job would come under HMRC's definition of self-employment; I've used their Employment Status Indicator tool and although it came back as 'undecided' (I'm going to contact them to discuss further), my answers to the questions they pose all point to self-employment. For example, I'll be providing my own laptop (they said they'd give me a mobile phone but I think now I'll just get my own), will be responsible for my own CPD/training costs, will pay all my professional registration fees as well as ensuring I have professional indemnity insurance. And I need to look carefully at substitution clause in the contract but would be wanting the right to send one (at my own expense) if I ever needed to.

Thanks again, your questions have made made me think things through a bit more. Still got a lot to consider!

VC

pleasedelete

Is it a central or local government contract? Did you tender? If you know you will be working 2 days a week (is it assured) then sounds like you may be employed.

VC76

Hi pleasedelete

The contract is with a group of schools that have formed a co-operative trust. There was no formal tendering process. However I have worked with this group of schools previously (not directly for them, just with them) and knew that they would be interested in what I had to offer. I did put together a proposal which I sent to them for consideration and they accepted it.

So does the fact that I will be working a set number of days a week for them mean I could be deemed to be employed by them? There contract has a fixed duration and there is a set fee. No stipulation in terms of hours worked etc. Of course, it could be broken down to a daily rate of pay (and the total contract value was worked up from this) but I thought that was common practice anyway when working in a consultant or contractor type role....

VC

pleasedelete

There are a number of intertwined issues. The trust is publically funded and will be expected to use the same procurement. The co-op may well have their own rules. It varies slightly from area to area but for example here- up to £10k a school can just offer a contract. £10k- 25k they can appoint from an approved list- basically a mini tender. Over £25k full tendering. But that is a side issue (but it would affect possibly working through a ltd company).

If you are a teacher teaching children in the same place each week then hmrc would see you as an employee (it isn't really open to do that via a ltd).

If you are a consultant and you chose to be self employed you would have no hmrc issues (but would maybe be worse off than being directly employed by the trust as no pension, sick pay etc).

If you go down a limited route it is not just the contract but the working practice. How the work was awarded would be a factor. Would you go to the same place to work each week wtc etc. There SI professionals with IR35 issues at the moment. Less risk if not LA but still a risk. Substitution is an issue but as it is highly skilled not a deal breaker.

VC76

I see. I'm not aware of this particular trust's rules regarding tendering etc. (do I need to be or is this a private matter for them?) but I do know the contract has been looked through by the various steering groups that oversee the trust's activities and they have not raised any objections...

I wouldn't necessarily be in the same place each week - the work I do would be spread across all of the schools in the trust and I would also be able to work from home should I wish to. I would also have a relatively high level of control over the actual work I engage in, particularly compared to the way in which I would have had to work when employed by a local authority.

I did think about sick pay, pension and other associated issues but being employed by the trust wasn't really an option and so the contract value was set to reflect this.

pleasedelete wrote: »

There SI professionals with IR35 issues at the moment.

I'm not quite sure what you mean by this?

Thanks for your replies.
VC

pleasedelete

School improvement professionals.

It maybe up to the trust (or indeed may not be ) but an open tender would suggest that it is not disguised employment and so that would be one indicator that ir35 didn't apply. By not having an open tender for that value of contract might be seen that it is actually a job. It is all risk. You need to assess the risk.

If you chose to go down the self employed route there are no ir35 risks but also none of the benefits that you would get by either being directly employed by the trust or working through a limited company.

VC76

I understand. I completely agree regarding the risks within this and I think the level of that risk is what I am trying to assess. I do think I need to have a further disucssion with my contact in the trust before I make any final decisions.

Thanks so much for your replies, they've been really helpful.

VC

pleasedelete

I would imagine that the contract will have a clause saying that you are liable to ensure that you pay your own tax- which is very vague usually but covers their backs.

It costs about £500 for the contract to go to an ir35 specialist but if you have an hmrc investigation the contract is only part of it- you can write a contract to say anything- it is the working practice that they drill into. They also ask about all of your other work and contracts.

Expenses don't affect tax code if you claim within hmrc guidance. £4,000 on that income for that type of business seems highish unless you have a lot of travel. Petrol, stationary, postage, some ict, car parking, ink cartridges (all those RAISEonline soon add up), train travel, hotels, some mobile phone or all if dedicated line, possibly some household office costs (but again possibly tricky), my insurance is about £300 for a much bigger turnover with an employee (I use hiscox). if you go ltd there will be set up costs and accountant costs etc.

CRB look for a local voluntary umbrella organisation. Much cheaper than one of the private companies.

Slith1961

Am I right that an umbrella organization is an association of (often related, industry-specific) institutions, who work together formally to coordinate activities or pool resources?

In business, political, or other environments, one group, the umbrella organization, provides resources and often an identity to the smaller organizations. Often in this kind of arrangement, the umbrella organization is to some degree responsible for starting the groups under its care. Compare to franchises and subsidiaries.