PAYE and Contracting for the same company
Thanks in advance for any advice.
I am a PAYE employee at a small-ish company. I've been there a couple of years and my value to the company has gone up considerably in that time. I requested a pay rise from my boss, the CEO. He accepted, but has offered to do it in a way that I was not expecting and I have no real idea of the implications. He has suggested that I setup a limited company and business bank account and send them an invoice monthly, for consultancy services, and they will pay it. My PAYE salary will remain the same. He says this will enable him to pay me more, plus it will enable me to save tax by offsetting various costs from the profits of my new company, thus reducing tax, along with some other mechanisms. He tells me this is not uncommon and indeed his accountant confirmed and explained how it could work. However, I'm suspicious and don't want any kind of issues.
My questions are... Is this a common setup? If so, are there any implications for me, or anything I should look out for? If this is common, why don't more people do it as it seems fairly easy to setup and not much overhead for either party.
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But if the job you do as an employee is similar or the same as the consultancy, and/or your company's consultancy business mostly derives from your employer, it looks very much like a sham, and whilst in most circumstances the blame (and the penalty) will be laid at your employer's door, that is by no means certain to be the case where you are complicit in the sham.
Plus, you need to have consideration for how this is treated under IR-35. If the Client is "small" (and it sounds likely in this case), then the determination of IR-35 status remains with the "contractor".