IR35 sole trader

billybonds4

Hi all and thanks in advance for your attention. 
I've had a read through some other IR35 posts. But slightly different circumstances.
I've always worked as a sole trader. Sometimes longer periods with same main contractor/company and had 20% income tax stopped at source. Do my end of year tax return and pay my NIC and make whatever adjustments are needed.
I've just started with a new company (2 months)on what I thought was same self employed basis, until I received payment for my invoice. I felt robbed. Instead of 10.25% NIC (I'd pay on return) I've been hit with 13.25%. And I've been charged 20% income tax for first £4150 and 40% thereafter.
I think I'm right in saying if I don't break the £50k threshold I'll be able to claim overpaid tax back??? But that's not on as I'm money down in meantime I can't afford to lose .
My main questions are.
-Am I still considered self employed, so do I still have to pay class 2 stamp.
-Most importantly. I still have to pay my own car traveling expenses (congestion charge, fuel etc) supply tools and so on. Can I still put this down as expenses on end of year tax return. If not , I'm totally out of pocket. Around £300 a month minimum.
IR35 is brutal.

Grumpy_chap

Are you employed via an Umbrella Company?
What did the information they provided contain?
What does their contract of employment tell you?

Were you working under CIS previously?

billybonds4

Grumpy_chap said:

Are you employed via an Umbrella Company?
What did the information they provided contain?
What does their contract of employment tell you?

Were you working under CIS previously?

Hi GC.
I have worked cis in past. This tax year I have only worked for this company. I work as a direct sub contractor with no umbrella company. I have no contract of employment. 
I supply my labour as a construction site supervisor. The job in question I invoiced was 1 month. I am now doing a 9 week job for them. I have no contract or agreement other than my day rate.

Grumpy_chap

Did the company provide you with a payslip to explain the deductions?

Have you seen the IR35 status determination?
Have you used CEST tool (HMRC website) to test / challenge the status determination?

billybonds4

I have a payslip which shows deductions as stated in my OP.
I wasn't aware of the tool!
Assuming I did have to stay on IR35. Where would that leave me in respect of expenses as stated in OP?

Thanks GC for input!!

billybonds4

I'm I haven't seen nor do I know what the status determination is? 

Regards 

Grumpy_chap

The answer to the questions about expenses will depend on how you are engaged / employed for the work.
You really need to get to understand this first - there must be something that constitutes a contract - it may have been verbal (though should be in writing if you are an employee) or may be a simple "statement of particulars" or "assignment schedule" if there is not an actual "contract of employment".  This does not need to be a great big long document but could be an attachment to, or even the body text, of an e-mail.

Trying to go through what has been said so far in the thread:

• It looks like you have never worked as Ltd Co contractor.

• It looks like you have previously worked as sole-trader contractor under CIS, but that does not seem to be the case here.  Except, if not operating as a contractor, why are you submitting invoices?

• You could be an inside-IR35 contractor.  You would probably know but to get to this, consider how you found the work.  Was it through an Agency?  Did the Agency provide the contract?  You would probably be working through an Umbrella Company.  You would see both employee and employer NI on the paperwork.  You would see Apprenticeship levy on the paperwork.  Do you see these?  Given that you say you are not working through an UC, I suspect you are not an inside-IR35 contractor.

• You could be a standard employee of the end Client with a standard contract and no end date, a regular employee.  You don't seem to think this is the case.  If you were, or thought you were, a regular employee, you would not normally present invoices.

• You could be an employee of the end Client on Fixed Term Contract (FTC).  You probably would still not need to submit invoices but just get paid via monthly payroll.  The Client may have received the invoices and ignored them.   

I suspect you are FTC employee of the end Client.  Let's call them "ABC" and to help work this out:

1. Do you submit the invoice (whether required or not) to "ABC" or another intermediary?
2. Does the payslip say "ABC" or another intermediary?
3. Did the payment to your bank show "ABC" or something else?

I am fairly certain you are being treated as an employee, most likely of "ABC" given you state there is no UC involved and Agencies generally prefer not to take workers as employees.

As an employee, the standard rate of NI is 13.25%.  Don't forget that this increased with the Health & Social Care Levy.

Income Tax.  Did you provide the employer with a P45 or a "New Starter Checklist"? 
It seems as though you are being paid and taxed on the basis of standard bands.  Assuming you are in England and the £4,159 was monthly pay, that is £1,048 at zero percent, then £3,142 at 20% (adds to £4,190 rather than £4,159 but there may have been an adjustment for pension, student loans etc) then everything over that at 40%.  If you do not exceed the £50,270 threshold by the end of the tax year, then any excess tax paid can be reclaimed.
If all of the £4,159 was taxed at 20%, then the employer would seem to have a tax code that assumes you have another job / income using up the zero rate band.  Again, if that is incorrect, the excess tax paid can be reclaimed.
If you are over-paying tax but can get the tax code corrected, then the overpayment may self-correct later in the tax year.

If you are employed and intend to stay that way, then you can declare that you ceased self employment and no longer liable for self-employment taxation.

Now, your final questions about expenses.  Assuming you are an employee:

• Items such as small tools are generally not claimable.  To be claimed, they need to be "wholly, exclusively, and necessarily" required for work.  If that test is met, why isn't the employer providing them?
• Buying small tools is specifically not allowed, but maintaining them can be : https://www.gov.uk/tax-relief-for-employees/uniforms-work-clothing-and-tools
• Mileage.  As an employee, what is the employer's mileage expenses policy?  Do they allow you to claim the mileage?  If so, you should.  If not, you can claim tax relief for business mileage at the rates £0.45/mile up to 10k miles, £0.25/mile over that.  Only for genuine business mileage, so not commuting.  For basic rate tax payer, tax relief equates to £0.09/mile or £0.05/mile.

TLDR:

1. Work out how you are employed.
2. If you are an "employee" of either the Client or an intermediary, tax, NI and expenses / relief will be as per a regular employee
3. Any tax overpaid can be reclaimed, but may self-correct.

Hope that helps.

prowla

IR35 was primarily introduced by the NuLab regime as a tool to disadvantage freelance workers in favour of the big consultancies and offshoring.

It's now evolved into something whose aim is to eliminate freelance working.

billybonds4

Wow. That's a fantastic response!

I've never been a ltd company and always worked cis elsewhere. All I have supplied ABC with is my UTC and bank details. Payment by them shows as ABC in my account.
I was introduced to ABC by a former colleague and given work with no third party involvement. I supply a site management service on a day rate. No fixed hours! They will have a contract running and wish my services for duration or partial period of project. With no guarantee or arrangements for next project. If it's a one month project. A PO will be raised for 20 days based on my day rate. If I say worked weekends in addition, the PO would be raised. I then invoice against that PO.
I can submit my invoice however I chose to. Weekly fortnightly or monthly etc.
It does appear that I'm stuck inside IR35 though.
If I was to invoice weekly and keep below the £4159 threshold. I guess I could avoid being overtaxed each invoice?

Thanks so much for your brilliant response GC

billybonds4

prowla said:

IR35 was primarily introduced by the NuLab regime as a tool to disadvantage freelance workers in favour of the big consultancies and offshoring.

It's now evolved into something whose aim is to eliminate freelance working.

Thanks for reply. 

Tories haven't exactly knocked it back! Disgraceful. Leaves workers wide open to not having benefits of a payroll employment nor the small benefits of being self employed. Largely the smaller earners like labourers and trades people, contract nurses etc, get shafted as per usual. Disgraceful!

DullGreyGuy

IR35 doesn't apply to sole traders and so any mention of it or assessments is a total red herring. 

I have to admit I know almost nothing about CIS scheme other than it exists in the construction industry and so you really need to be speaking to your client/employer. If its outside CIS then they wouldnt make any deductions for a self employed person and so it suggests either you are an employee or inside of CIS.

billybonds4 said:

prowla said:

IR35 was primarily introduced by the NuLab regime as a tool to disadvantage freelance workers in favour of the big consultancies and offshoring.

It's now evolved into something whose aim is to eliminate freelance working.

Thanks for reply. 

Tories haven't exactly knocked it back! Disgraceful. Leaves workers wide open to not having benefits of a payroll employment nor the small benefits of being self employed. Largely the smaller earners like labourers and trades people, contract nurses etc, get shafted as per usual. Disgraceful!

I would disagree with Prowla... IR35 was to stop a convenient relationship existing where someone who was really an employee pretended not to be and operated via their own LTD which enabled them to pay substantially less tax than if they had been an employee. What IR35 effectively says is if you are for all intents and purposes an employee then you should pay the taxes an employee would have to pay.

I am not sure many small earners like labourers or nurses have gone to the effort of incorporating to be caught by the IR35 legislation. It is much more likely to catch people like me who is a contractor and not a small earner.

Take one chap I used to work for me (in a project sense not line management)... he was paid £1,000 a day excluding VAT. He paid himself, his housewife and 2 late teen kids (at least on paper) £10,000 a year all of which is naturally tax free for "admin work", their annual family holiday was charged to the company as it's "AGM", similarly the £600 for the "xmas party" (£150 per employee). They paid dividends to the 4 of them for what they needed making sure none ever become a higher rate tax payer and left the rest in the company.

Every couple of years he'd close his company, get entrepreneurs relief on the money remaining in the company and then after a couple of months off form a new company and start again. 

Its roughly earning £240,000 a year which as an employee he'd be paying about £104,000 in tax and NI but he paid a small percentage of the tax and no NI at all.