Being paid PAYE when a sole trader

MellyHarps

Hi

I have been registered as a freelancer (sole trader) since April 2016. I have a new client who would like me to do some work for them but usually only employs freelancers who are a Limited Company. As I am a sole trader I was wondering how easy is it for me to register as a Limited company and what are the benefit/drawbacks. The other option to pay me is for me to become an temporary employee for the 2 month contract and be paid PAYE. Not ideal but an option. What kind of implications does this make to my tax at the end of the year?

My question is would I be better to go down the Limited company route or the PAYE route for this piece of work. I hope that they will become a longer term client in the future.

any advice you give would be great.

Thank you

Mel

paddyrg

Take the PAYE route, the accounting overhead and directors obligations for forming a limited company are rarely worthwhile, and very unlikely for a 2 month job (setting up, managing and closing company is going to be 4 figures in itself, and it'll still pay tax - the only saving is a little NI)

Pennywise

Depends what profits you make from your sole trader work. It's quite possible you'd be better off by being a limited company regardless of this contract if your profits are around or above average earnings of say £26,000. Even with accountancy and other costs related to a company, you could still be better off by several hundred pounds.

What is certain is that taking this contract via PAYE will cost you more in tax and NIC than it would cost if you were either a sole trader or limited company.

I'd suggest you talk to your accountant who will know your figures etc and will be able to provide some comparison figures to help you decide.

Rappa

paddyrg wrote: »

Take the PAYE route, the accounting overhead and directors obligations for forming a limited company are rarely worthwhile, and very unlikely for a 2 month job (setting up, managing and closing company is going to be 4 figures in itself, and it'll still pay tax - the only saving is a little NI)

Whilst I would tend to agree with the general gist of your post that it probably would not be worth it, I must question the "4 figure" sum you are suggesting it would cost to set up, manage and close the company.

You can get yourself a limited company set up for about £15
You'll need a bank account, but most set up agents will help you arrange a "free" one of those.
3 months after ceasing trading, you can apply to have the company struck off - that costs £10

Total cost: £25 :money:

Rappa

MellyHarps wrote: »

Hi

I have been registered as a freelancer (sole trader) since April 2016. I have a new client who would like me to do some work for them but usually only employs freelancers who are a Limited Company. As I am a sole trader I was wondering how easy is it for me to register as a Limited company and what are the benefit/drawbacks. The other option to pay me is for me to become an temporary employee for the 2 month contract and be paid PAYE. Not ideal but an option. What kind of implications does this make to my tax at the end of the year?

My question is would I be better to go down the Limited company route or the PAYE route for this piece of work. I hope that they will become a longer term client in the future.

any advice you give would be great.

Thank you

Mel

If they are prepared to take you on as PAYE for this work, you may find that HMRC will consider you an employee (or disguised employee) no matter how you eventually provide your sevices to them.

Check the HMRC website for more information.

paddyrg

Rappa wrote: »

Whilst I would tend to agree with the general gist of your post that it probably would not be worth it, I must question the "4 figure" sum you are suggesting it would cost to set up, manage and close the company.

You can get yourself a limited company set up for about £15
You'll need a bank account, but most set up agents will help you arrange a "free" one of those.
3 months after ceasing trading, you can apply to have the company struck off - that costs £10

Total cost: £25 :money:

Would you at no point need to file a tax return of any kind? It would seem wide open to abuse to daisy chain mayfly companies every 11 months :-! Genuine question BTW.

As you can tell I'm not in any way up on detail - just 2 PAYE cycles (possibly with holiday benefits !) strikes me as very unlikely to be a worse deal than DIY-ing a company for so short!

MellyHarps

Thank you for all your advice. If I took the Limited company route then I wouldn't close the company down at the end of the contract, I would remain a Ltd Co. I suspect if I took the PAYE route then I could only do that once otherwise my accounts would be in a right mess (assuming that the client would want to work with me again) I have only been a sole trader since April this year so do not know what my profits income is going to be just yet.

Aquamania

paddyrg wrote: »

Would you at no point need to file a tax return of any kind? It would seem wide open to abuse to daisy chain mayfly companies every 11 months :-! Genuine question BTW....

Where you apply to strike off your company that has been trading, you do need to file statutory accounts with HMRC (but not Companies House) and pay HMRC tax due before the strike off can take place.

Such accounts for service company that covers one person for 2 months for a single client as the OP suggests will have very simple tax affairs I would suggest. I suspect they almost certainly qualify as small accounts not subject to any audit, in which case the OP could do them online.

Aquamania

MellyHarps wrote: »

Thank you for all your advice. If I took the Limited company route then I wouldn't close the company down at the end of the contract, I would remain a Ltd Co. I suspect if I took the PAYE route then I could only do that once otherwise my accounts would be in a right mess (assuming that the client would want to work with me again) I have only been a sole trader since April this year so do not know what my profits income is going to be just yet.

Why would taking up temporary employment make your accounts "a right mess?"

There are many people that take up temporary employment for various reasons from time to time, some of which may well also have some kind of ongoing self employment.

What you earn as an employee is handled totally seperately to what you earn as self employed on your tax return.
Your employer will take care of what they pay you and should give you details of this when you leave on a P45 (as well as details of each payment made to you at the time on your pay slip)

MellyHarps

Only because I hope to work with this client on a regular basis and it will often be for a month or two month stint at a time. In between I will be working as a sole trader again. Not necessarily a mess but additional hassle. As I said I don't know know either way as I am new to this having been employed all my career.