Reached settlement agreement with employer to leave and now wish to contract for them

gary4321

Hoping someone can kindly help me with my question.

Having agreed a settlement and left my employer (all amicable), I have now had an offer from them to contract with them for a totally unrelated role to the one I was doing before. I've looked at the HMRC website and completed the "Check employment status for tax" questionnaire and it tells me I would be "self-employed for tax purposes for this work" (I won't get any benefits from my old employer, will be responsible for completing the work at my own pace, will be using all of my own equipment, I can do other work for other companies, etc).

So my question is, what do I do now? Can I simply start working for them and submit an invoice at the end of each month for the days I've worked (I've agreed a daily rate) and then call HMRC to inform them what I'm doing, or do I need to set myself up as a company beforehand (if so, how would I do this?) or do I not need to do anything at all other than inform HMRC and then submit the correct tax and NI by completing a self-assessment?

I guess what I'm asking is what is the process for identifying what I need to do?!

Many thanks in advance.

getmore4less

What do the company want

For some kinds of work companies will insist on  ltd(umbrella)  other happy with simple self employed.


Often comes down to preference and liabilities


With HMRC register as self employed if going that route

gary4321

Thanks for the response.

They are happy for me to simply submit invoices under my name.

How do I register with HMRC as self-employed? Do I simply call them up?

Thanks in advance.

Marcon

gary4321 said:

Hoping someone can kindly help me with my question.

Having agreed a settlement and left my employer (all amicable), I have now had an offer from them to contract with them for a totally unrelated role to the one I was doing before. I've looked at the HMRC website and completed the "Check employment status for tax" questionnaire and it tells me I would be "self-employed for tax purposes for this work" (I won't get any benefits from my old employer, will be responsible for completing the work at my own pace, will be using all of my own equipment, I can do other work for other companies, etc).

So my question is, what do I do now? Can I simply start working for them and submit an invoice at the end of each month for the days I've worked (I've agreed a daily rate) and then call HMRC to inform them what I'm doing, or do I need to set myself up as a company beforehand (if so, how would I do this?) or do I not need to do anything at all other than inform HMRC and then submit the correct tax and NI by completing a self-assessment?

I guess what I'm asking is what is the process for identifying what I need to do?!

Many thanks in advance.

Start here: https://www.gov.uk/set-up-self-employed

richardw

Would you be inside IR35?

pjcox2005

Self-employed/employed status and IR35 are obviously important, but first I would be checking your severance contract/settlement agreement before taking on any role. It may be amicable but I'd want to confirm there is no clawback for returning to "work" for them within a certain time period and if there is make sure that in writing they waive that point if going to take you on in the new subcontract role.

gary4321

richardw said:

Would you be inside IR35?

As per my original post, I believe not, as I took the 'test' on the HMRC site and it classed me as self-employed for the purposes of the work?

gary4321

pjcox2005 said:

Self-employed/employed status and IR35 are obviously important, but first I would be checking your severance contract/settlement agreement before taking on any role. It may be amicable but I'd want to confirm there is no clawback for returning to "work" for them within a certain time period and if there is make sure that in writing they waive that point if going to take you on in the new subcontract role.

That's a good point, thank you, and one I checked. There is no clawback or other clauses around returning to work for them as a contractor.

So I believe I'm classed as self-employed for this but do I need to set myself up as a company or something similar or can I simply invoice them until I can return to employment elsewhere, please? I'm really not interested in being self-employed and wish to return to full-time employment but this is a very handy stop-gap for me until the job market picks up post-covid.

Thank you everyone for all the responses so far, you don't know how helpful this all is.

deedee71

gary4321 said:

richardw said:

Would you be inside IR35?

As per my original post, I believe not, as I took the 'test' on the HMRC site and it classed me as self-employed for the purposes of the work?

The end client should be providing you with the determination (as they are ultimately responsible for ensuring the appropriate taxes are paid).

There's also legislation (the name escapes me for the moment!) which means the company may not allow payments into a personal account.

Is this the only time you'll be a contractor?  If it's short-lived then self-employment may be the simplest route.  There's costs and responsibilities to setting up a limited company although it's fairly straightforward.  I'm a day rate contractor and don't use an accountant.  Will you go over the VAT threshold (£85K in any year), if so it there's a bit more admin required.  You should put in place a watertight outside IR35 contract detailing the scope of work, delivery timescales and invoicing arrangements (weekly, monthly, milestones).  

One of the main benefits of ltd for me is the company can make employer pension contributions.

https://www.contractorcalculator.co.uk/what_is_a_personal_service_company.aspx


You say the role (don't call it role, it's not a job) is totally unrelated, however is it sufficiently unrelated that you would avoid being deemed a "disguised employee"

https://www.contractorcalculator.co.uk/permanent_to_contracting_same_company.aspx 
https://www.contractorcalculator.co.uk/ir35_avoidance_outside_contracting_former_employer.aspx

Hope that helps.

JohnDorian

If the client is willing to confirm they agree with the CEST and that you are outside then you should just go ahead and start work and invoicing. 

People often over complicate IR35. If your client is happy that you are outside, then for your purposes, you are outside. It is the client’s responsibility to assess the role and if they say outside then you are outside. 

As for HMRC, you will have to consider how you are going to invoice (sole trader or LTD company). But call HMRC and register for self assessment immediately and also consider VAT implications from the start.