Tax and NI, as a freelancer

Dannydee333

Hiya guys,

I've started working for a US company (I'm in Belfast) part-time, transitioning to full-time in July. They will pay me through Transferwise, so I'll receive payment in pounds.

I'm going to be an independent contractor, and this is a new world to me. I'd love to get the answer to a few questions, please..

1. Does that mean I'm self-employed?
2. How exactly do I begin to pay my own tax?
3. Do I need to pay national insurance, even though my employer is in the US?
4. I assume I'll need my P45 to prove how much taxable income I've already received?
5. Will my salary being listed on my contract in USD be an issue for HMRC?
6. How often can you / should you pay tax?

I can't think of anything else for now, but please feel free to let me know of anything I may have missed or anything I should be concerned about.

Thanks in advance,

Danny

General_Grant

Dannydee333 said:

Hiya guys,

I've started working for a US company (I'm in Belfast) part-time, transitioning to full-time in July. They will pay me through Transferwise, so I'll receive payment in pounds.

I'm going to be an independent contractor, and this is a new world to me. I'd love to get the answer to a few questions, please..

1. Does that mean I'm self-employed?  If you have an employer you are not self-employed but an employee.  With only one client (if you are claiming to be an independent contractor without an employer), then it is rather difficult to say you are self-employed.  How much autonomy will you have to get the work done?  Can you sub-contract to someone else for instance?  I think you can check on the HMRC website what they consider justifies the self-employed classification.
2. How exactly do I begin to pay my own tax?  You would register with HMRC and complete a self assessment.
3. Do I need to pay national insurance, even though my employer is in the US?  You would pay Class 4 NI as self-employed if you are self-employed but if you have an employer who doesn't have a UK office you need to pay your own Class 1 contributions to HMRC.
4. I assume I'll need my P45 to prove how much taxable income I've already received?  P45 from where?  Presumably you mean a P45 from whoever employed you before you started for this US company and who no longer employs you.  So yes, you need that.
5. Will my salary being listed on my contract in USD be an issue for HMRC?  HMRC are interested in how much you actually receive.  They don't look at your contract.  BUT if you were self-employed you would be invoicing the client, wouldn't you?
6. How often can you / should you pay tax?

I can't think of anything else for now, but please feel free to let me know of anything I may have missed or anything I should be concerned about.

Thanks in advance,

Danny

You need to establish whether you are an employee or self-employed.

Dannydee333

Thanks. No, I'm not an employee, I'm being paid for services. However, my contract does state that after probation (3 months) "the contractor would then be eligible for salary re-evaluation", and we have already agreed on what this amount will be.

My home is a registered Ltd company (active but not trading).

Another thing, my main employer wants a decision by close of business today. So the pressure is on.

Part of me wants to take a leap of faith but part of me is scared.

What's the worst that can happen?

MattMattMattUK

Dannydee333 said:

Thanks. No, I'm not an employee, I'm being paid for services. However, my contract does state that after probation (3 months) "the contractor would then be eligible for salary re-evaluation", and we have already agreed on what this amount will be.

My home is a registered Ltd company (active but not trading).

What do you mean by your home being a Ltd Company? Do you mean you have a Ltd registered at your home address, as it is active are you submitting accounts for that company?

Dannydee333 said:

Another thing, my main employer wants a decision by close of business today. So the pressure is on.

What decision is there specifically to make? Whether you are self-employed or they pay your Ltd?

Dannydee333 said:

Part of me wants to take a leap of faith but part of me is scared.

Self employment or being a Ltd Company director is nothing to be scared of, however it might be wise to engage an accountant to assess your tax position if you do not feel confident in doing so yourself. 

Dannydee333 said:

What's the worst that can happen?

A global pandemic, alien invasion and the collapse of civilisation. The worst that could happen in relation to not getting the choice between SA and Ltd right is that SA will probably be less tax efficient than Ltd, but the accounts will be cheaper. Although with Ltd you need to double check IR35 as I am not sure how that would work with your client being in the US. 

p00hsticks

Dannydee333 said:

Thanks. No, I'm not an employee, I'm being paid for services. However, my contract does state that after probation (3 months) "the contractor would then be eligible for salary re-evaluation", and we have already agreed on what this amount will be.

My home is a registered Ltd company (active but not trading).

Another thing, my main employer wants a decision by close of business today. So the pressure is on.

Part of me wants to take a leap of faith but part of me is scared.

What's the worst that can happen?

If you are genuinely not an employee both you and the company that are requiring you services need to stop using phrases like 'my main employer' and 'my salary'.

From what you've said so far it sounds to me that you probably really ought to be an employee, but the US company wants to avoid all the legalities of being an employer in the UK. As General Grant says above there are criteria that help determine if you are an employee or a contractor. Is it a fixed term contract ? Can you decide how and when to do your work ? If you were indisposed, would you be allowed to get another person on to continue your work ? Can you work for other companies at the same time ? Are you going to invoice the comany for the work you do or have they put you on a US payroll of some description ?

Dannydee333

My address is registered as Ltd because I attempted business a couple of years ago. There is no connection to my job. I send abridged accounts every year but no trading has been done. I've kept it "active" because I did/do intend on starting a business again. But perhaps it could now be utilised for this endeavour.

The company I planned to leave wants a decision today as to whether I'm taking the new role they offered.

It states in my contract specifically that I am and independent contractor, not an employee. However, I would be on salary after July the 1st (when my notice is worked off).

We are required to invoice their accounts team every 2 weeks for our services. Currently I would send them hours worked, and after the 1st of July I'd no longer be required to state hours as I'd be on salary.

It's not fixed term but as long as no rules or NDA is breached or anything, there's no reason for it to be a problem. The closest thing to that would be that there is a "3 strike rule" where if you affected a client for missing deadlines 3 times for example, the contract can be ended.

I can't see any reason why I wouldn't be able to do other work aside from this. In fact that's one of the attractions - because I could significantly increase my income by doing other work.

The hours are flexible. All staff are spread out all around the world and as long as work is done, it's fully flexible.

I think that covers everything. The tax stuff, I guess I could figure out later.

Dannydee333

It doesn't matter now. Whilst it would be an exciting leap there was too much unforeseen risk, with being a self-employed contractor and all that stuff.

I accepted the offer from my current employer of a new finance role and increased salary. Terms to be decided in the coming days.

What the US company writes in their contract has no bearing on UK employment law.

I've had some good advice today on here and on another forum. Thanks.

Dannydee333

This is mental, I floated the idea of staying on with the US company part-time, and she said she was going to ask me that anyway (because I said I might be staying with my main employer).

I'm getting the best of both worlds - I get to keep my secure and safe job, at least for now (with a new role and salary increase) whilst trying out this contractor stuff indefinitely.

It's been a stressful week but everything seems to have worked out better than expected.

Marcon

Dannydee333 said:

What the US company writes in their contract has no bearing on UK employment law.

Correct. You are still bound by UK employment law and UK tax laws - as are they if HMRC decides you are an employee; subject to IR35 (limited company notwithstanding); or a 'worker'.