Starting Up - Consultancy

rosmersholm

Hello, wonder if anyone could help?

I am a full-time employee at the moment and have done some consultancy work within a company before - and am looking to set up my own consultancy for a small number of jobs (within the confines of being agreed with my LM and using Annual Leave)

I would mostly be selling my services to the Public Sector (i.e. training courses) and I am just trying to assess what taxation I would be liable for in multiple scenarios. One of which is displayed below.

Given that my market is the public sector, I've assumed that being a Limited Company is essential (given that often some public sector bodies only pay organisations, not people) - so as a Limited Company - I would pay myself with the dividends.

Assumptions - aiming to have a gross profit of £10,000 (notional)
As such, my understanding is that....

1) Profits are taxed at 20% (before making the dividend calculation)
2) Dividends are taxed at a 32.5% (because I earn 30k+ a year) Also assuming that after dividend tax credit weird thingy - 25%

So notionally my real income-in-the-bank would be 6000k thereabouts?

Firstly - apologies if I have got this very wrong - but today is the first day I have thought seriously about this and would much appreciate any advice or thoughts about my knowledge gap!

Kind regards
Ros

Annisele

I think you're right on the tax.

Corporation tax would be 20% (see HMRC's rates.

If you were a basic rate taxpayer, there'd be no further income tax for you to pay personally.

Assuming your £30k plus takes you into being a higher rate taxpayer, you effectively pay 25% of the dividend in tax (HMRC again).

If you haven't already, it's worth thinking about whether you'd fall inside or outside IR35. From the little you say I suspect might you fall outside - but if you don't know what IR35 is, google it just in case.

Helper_d

A really good guide that I've used in the past is:

#Im not allowed to post links a first time user but its

contractoruk-dot-com/first_timers

, the website has other parts that is specific to the IT industry but their first timers guide covers pretty much everything.. expenses, tax, dividends etc and is well worth a read in my opinion

Mistral001

rosmersholm wrote: »

Hello, wonder if anyone could help?



Given that my market is the public sector, I've assumed that being a Limited Company is essential (given that often some public sector bodies only pay organisations, not people) - so as a Limited Company - I would pay myself with the dividends.

I do not think it is whether you are Ltd or not that they worry about. They tend not to like working with one-man-bands. Sole traders withs several employees are OK. Also partnerships tend to be OK.

paddyrg

Mistral001 wrote: »

I do not think it is whether you are Ltd or not that they worry about. They tend not to like working with one-man-bands. Sole traders withs several employees are OK. Also partnerships tend to be OK.

I know some companies will only contact with limited companies add it makes the line extremely clear that they are not employing an individual. Many moons ago, there was a tale (probably folklore) of a contractor who was working for the company for many years, and who partook in company meals and rituals. Time came be couldn't work, or similar, and asked for sick pay, or some other employee benefit like pension. Said company rightfully told him where to get off, but through the courts it turned out he was a de facto employee. Since then, all contractors through looked companies only to guarantee it never happens again.

Maybe folklore, but the public sector is exactly where I could see it happening to be Frank.

somethingcorporate

paddyrg wrote: »

I know some companies will only contact with limited companies add it makes the line extremely clear that they are not employing an individual. Many moons ago, there was a tale (probably folklore) of a contractor who was working for the company for many years, and who partook in company meals and rituals. Time came be couldn't work, or similar, and asked for sick pay, or some other employee benefit like pension. Said company rightfully told him where to get off, but through the courts it turned out he was a de facto employee. Since then, all contractors through looked companies only to guarantee it never happens again.

Maybe folklore, but the public sector is exactly where I could see it happening to be Frank.

Not at all folklore, it is HMRC that decides who is employed/self-employed based on a set of specific criteria and if they are deemed to be employed then they are entitled to the same rights that any normal employee has! which includes all the above about sick and holiday pay so not just a one off case but I am sure this happens dozens and dozens of times a year.

Brassedoff

Sorry, you would not be a Consultsnt, you would be a training provider in the instance you describe.

I deal in tenders and framework agreements for Local Authorities, Regionals, National and others like the NHS. You will find that getting to supply any of these groups very difficult. When you contract for any type of work over a certain amount, say, you only held a course once per month then multiple that by three years, you would find that breaches the financial limit set before going out to tender.

Once out to tender you would have to achieve sufficient points to beat the larger providers or company's that then provide as part of their services a range of services under training and delivery.

The points are set per tender. Usually financial standing 30 points, prior successful delivery (as a company, not working for someone) 50 points, health & safety 10 points, attainment of governing body membership 10 points. You would also have to have to be able to deliver three references from company who you had delivered the same courses successfully under the name of the firm you apply under etc.

If it does not go out to tender and they have in three years enough work to take the total sum over the OEUJ limits there would be major issues. For thst reason, these authorities are very careful when putting this work out.

As for the IR35, those rules were tightened up yet again last week. You must have an umbrella or your own company, must have at least three separate customers, must invoice and receive payment.

Consider this;

• IR35 determines whether contractors are "disguised employees" or genuinely self employed
• Simply put, IR35 determines your employment status and, in turn, how much tax you pay
• Being 'inside IR35' means a contractor is liable for full PAYE and NIC's
• IR35 status is determined on an assignment by assignment basis, so can change for each new contract
• Being found to be inside IR35 does not mean you cannot work through a limited company

isplumm

Brassedoff wrote: »

Sorry, you would not be a Consultsnt, you would be a training provider in the instance you describe.



As for the IR35, those rules were tightened up yet again last week. You must have an umbrella or your own company, must have at least three separate customers, must invoice and receive payment.

Can you point towards the change of IR35 - especially the 3 customer bit? I haven't seen that anywhere?

Thanks Mark

gb12345

isplumm wrote: »

Can you point towards the change of IR35 - especially the 3 customer bit? I haven't seen that anywhere?

Thanks Mark

Strange that there is no mention of this that I can find on the HMRC website.

rosmersholm

Brassedoff is right that I would be a training provider (rather than consultant) and my clients would be Members / Officers from a number of LAs - so will have a number of "clients"

Many thanks for all your help.

I am definitely outside IR35 - as I work FT with a LA, who haven't asked me to do it! Definitely my prerogative and my customers!

pleasedelete

Will the la let you run another business? Do they ave intellectual property rights over your work etc etc? Check your contract and get written permission.

The public liability and insurances will be about £400 a year in this area to meet LA tendering guidelines. You can win local and national government contracts as a start up with no history. We did. Very small contracts of the amount you mention have limited tendering. The government has a pledge to give contracts to such companies and that they shouldn't be disadvantaged.