Consultant or Employee

mattrobbo99

I have the chance of getting an additional job from which I would earn approximately GBP20k per year. I am already a higher rate tax payer so this job is in addition to what I already do.

My question is if there is any benefit from being employed as a consultant for my 2nd job or to be an offical employee, so I suppose this means making a self declaration vs being paid via a PAYE system.

Is there an impact on the national insurance contributions? as there wouldn't be an employER portion of my NI that is paid to the IR.

Are there other tax savings I can make using one method vs the other?

I'mlooking at this purely from a tex point of view and ignoring other points like job security, being able to get mortgage approval etc.... as I already have my main employement.

nomunnofun

'Deciding' whether you are an employee or self-employed is not up to you or your employer, I am afraid. This will be determined by facts.

Who decides your hours of work?
Are you free to do other work?
Will you be using your own equipment?
How and when will you be paid?

Just four questions that need to be answered before consideration.

chrismac1

Properly designed so that it is valid self-employment the answer is that there are lots of possible benefits. First off you need to look at something called IR35 and see whether the situation is one of service (a bum on a seat) or of services provided to a customer. Ideally you want the answer to be a contract for services.

mattrobbo99

The hours would be a joint decision
I'd be free to do other work
I'd either submit a monthly invoice and get paid against that or would be paid monthly for the hours worked but as an employee
I'd be using my own equipment
The decision would be whether I have an employment contract or just work as a contractor

agrinnall

Employer's NI won't make any difference to your contribution record (in fact, I suspect there's little relationship between you and the NI that employers pay, I have a feeling it just goes into an amorphous pot to be frittered away by the government) and as you are already a higher rate tax payer your record should be fine.

Whether any extra NI gets paid would depend how you arranged the consultancy contract. If you distribute the money through dividends there won't be any NI; if you go the IR35 route and pay through PAYE you'll have to pay both employers and employees NI, and it might end up simpler just being an employee.

xylophone

Have you looked into making additional pension contributions?
Have you looked into tax relief on allowable expenses?
http://www.hmrc.gov.uk/incometax/intro-tax-allow.htm

nomunnofun

agrinnall wrote: »

Employer's NI won't make any difference to your contribution record (in fact, I suspect there's little relationship between you and the NI that employers pay, I have a feeling it just goes into an amorphous pot to be frittered away by the government) and as you are already a higher rate tax payer your record should be fine.

Whether any extra NI gets paid would depend how you arranged the consultancy contract. If you distribute the money through dividends there won't be any NI; if you go the IR35 route and pay through PAYE you'll have to pay both employers and employees NI, and it might end up simpler just being an employee.

On thing that has not been addressed is the fact that the op is a higher rate taxpayer - it is more than likely that there would be no additional NIC to be paid at all. If self employment is appropriate an application can be made to defer class 2/4 NIC.

http://www.hmrc.gov.uk/forms/ca72b.pdf

If the second job is as an employee, class 1 NIC deferment is appropriate:

http://www.hmrc.gov.uk/payerti/employee-starting/special-situations/multiple-jobs.htm

It could well be that being paid as an employee is simpler all round.

mattrobbo99

My thought are that if I made a self declaration for additional salary on my own, the tax I would pay would be the same as if I was employed. There would just be additional employer NI that would be paid by the company.
The tax and NI for me would be the same wouldn't it?

nomunnofun

mattrobbo99 wrote: »

My thought are that if I made a self declaration for additional salary on my own, the tax I would pay would be the same as if I was employed. There would just be additional employer NI that would be paid by the company.
The tax and NI for me would be the same wouldn't it?

No it would not. Read my previous post. Given that you already pay HR tax, it is likely that you will pay the max Class 1 NIC at your main job and, therefore, any additional contributions will be at 2% rate.

mattrobbo99

True but wouldn't additional contributions be at 2% either way?

nomunnofun

mattrobbo99 wrote: »

True but wouldn't additional contributions be at 2% either way?

Ah - I see how we got confused? The NIC would be 2% whether self-employed or employed. The point that I was referring to was that you would have to claim deferment as, without this, the second employer (or you as self-employed) has to charge at the full rate - i.e. the NIC would not be the same if you applied for deferment.

We got there in the end.:)