Independant contractor/self employed tax - help and advice needed please

xoxo2012

Evening everyone,

Hoping all you lovely members of MSE may be able to shine a little light on my predicament!

I am currently working for the HM Forces earning £31,000 a year and as I have only ever been full time employed have always had tax deducted from my wages prior to receiving them.

However I am considering a job move which has recently been offered this is where I need some advice or knowledge of self employed tax please....

I have been offered a two year contract with a company but as an independent contractor which the employer tells me means I will have to register as self employed.

The wages they are offering are £25,000 a year, although I realise this will inevitably be a considerable drop in wages I cannot seem to get my head around the tax workings of being self employed.

The employer has lead me to believe that I will receive more of my wages than I would employed for the same wage. I appreciate some advice will be to speak to an accountant which I intend too however I have a pretty immediate decision to make as to take the job or not.

Can anyone shine a light on Self employed tax benefits?

Sorry for the long winded post and thanks in advance!

chrismac1

There are two main potential benefits:

1. You can claim more expenses than an employed person.

2. If this contract is run through your own limited company, your only tax bill will be 20% corporation tax and no NI to pay.

CAVEAT - Google IR35. Employment status cases have been a massive UK tax battleground over the past ten years.

You definitely need to get some decent advice. If you want some useful links, PM me and I'll message them to you. The site rules forbid me putting them into this thread.

magpiecottage

chrismac1 wrote: »

CAVEAT - Google IR35. Employment status cases have been a massive UK tax battleground over the past ten years.

Absolutely.

It sounds like the firm is trying to pay the OP £25,000 all but telling them that they save National Insurance by trading as a separate limited when they will not.

For HMRC to accept it as truly self-employed (or a totally unrelated limited company) the relationship between they will look to see who is the "ER" and who is the "EE".

An employER decides what to pay an employEE.
A contractER decides what they want a contractEE to pay them.
(The firm has dictated the price so that suggests they are really an employER and the OP an employEE).

An employER decides when the employEE works
A contractER can negotiate this with the contractEE
So who sets the hours?

An employER decides where an employEE will work
An contractER decides where they will work for the contractEE
(Obviously there is some scope for variation on this - a gardener can hardly move somebody's lawn to his own premises and cut it!)

An employER provides the equipment for the employEE to do their work
An ContractER provides their own equipment to do the jobs the contractEE asks them to do.

An employER expects the employEE to work exclusively for them at the specified times.
A ContractER decides when to work for the ContractEE (although they may agree that a particular period will be working exclusively for a particular contractee).

My suspicion is the firm wants the OP to work on their premises at set times. Furthermore, either there is a set time scale for this (which would seem to infer giving up whatever job security there currently may be) or it is indefinite (which has all the hallmarks of employment).

If HMRC considers it to be employment then the OP will be allowed 5% (if I remember correctly) - i.e. £1,250 - to cover the cost of running a business. The rest will then have to be adjusted so that it covers employer's National Insurance (remember the current employer is paying this) and they will still have to pay their own National Insurance and Income Tax - as well as administering it themselves or paying somebody to do it.

With all that in mind, I think the OP is likely to find they are considerably WORSE off by jumping ship unless they will be working from home as a limited company and have a number of other clients at the same time.

Savvy_Sue

chrismac1 wrote: »

There are two main potential benefits:

1. You can claim more expenses than an employed person.

2. If this contract is run through your own limited company, your only tax bill will be 20% corporation tax and no NI to pay.

As well as the other caveats, I think it's worth pointing out what I see as some major potential DISadvantages of not being an employee.

1. The employer does not have to give you paid holidays - if the employer is saying "we'll pay £25,000 spread evenly over 12 months but of course we don't expect you to work 52 weeks a year" then that's another indication of employment as opposed to contracting, to me.

2. The employer does not have to give you statutory sick pay if you're ill or injured and can't work (or statutory paternity or adoption pay, should that be relevant).

3. If not now, then soon, the employer would be obliged to auto-enrol you in a pension scheme into which both parties would be obliged to contribute (unless the employer is very generous and covers the minimum contribution itself). If you're a contractor, you have to cover your own pension requirements.

For that reason, if there really IS a choice to be self-employed, the advice is to make sure your hourly rate is more than it would be for an employee doing similar work, so that it covers periods when you're NOT working and enables you to pay for your own pension.

chrismac1

Avoid assuming things - it will make an !!! out of U and ME!

We know nada about the contract terms, yet already posters are jumping into them with both feet.

ThemeOne

Be wary about IR35 - on the face of it, it sounds like you might be caught in its net, but as others have said it does depend on the contract terms.

If you're just going to be a sole trader and have any kind of tolerance / time for dull administrative jobs, I would consider longer-term dispensing with an accountant.

I've found most don't do a lot for their money, nor do they do anything most people can't do for themselves.

xoxo2012

Many thanks for your advice so far!!

It has helped to see there are so many different elements to this!

We are to discuss contracts this week in which case I think it may become a lot clearer to me exactly where I stand.

All I am informed of at the moment is as somebody has already stated I will be paid a set salary and will be working hours set by the boss of the company.

However all I have been told is all the contractors working for this company are their own LTD company and set up self employed as would be expected of me if I took the job.

I realise the lack of benefits regards sick pay, holiday pay etc. and would have to have a serious think about that side of things. I get a considerable amount of benefits at the moment however I suffer in many other ways which moving to a new job would quickly solve for me.

I shall have to read into the above advice and have a serious chat with the workplace offering the contract. Might also have a very good chat with an account.

Thank you kindly for the advice!

ThemeOne

Running your own limited company is a little more complicated than being a sole trader, though still not impossible to manage by yourself if you're so inclined.

You may at some stage be offered the services of an "umbrella company" who in return for "organising everything" re your pay etc will take a cut of your money.

My comments above about accountants often not being worth it, also applied to umbrella companies!

nomunnofun

chrismac1 wrote: »

Avoid assuming things - it will make an !!! out of U and ME!

We know nada about the contract terms, yet already posters are jumping into them with both feet.

Your advice is, almost without exception, very good even when when one delves beneath your obvious distaste of all things HMRC.

Why you feel the need to continually chide other posters who equally contribute good advice is entirely beyond me.

chrismac1

Average accountants' satisfaction with HMRC is currently around 40%, compared to 70% from the general public. In my view, the biggest single reason for this is that accountants have a far better understanding of the deceitful, slow pay aggressive HMRC culture of the 21st century.

My contribution to the survey was a mark of 2 out of 10, and I gave the survey person 4 or 5 examples to back up that mark. Had this survey been conducted in 1992 my mark would have been 8, in 2002 it would have been 5.

Can anyone spot the trend?

Gas_Powered_Toothbrush

chrismac1 wrote: »

Can anyone spot the trend?

Yes. Your hatred is blinding you more with each passing year.