Going Self Employed - Tax Advice ?

Balders33

Im being made redundant, and I've been offerred the opportunity to go self employed on a Consultancy basis, however I have the following questions:

I will be starting with one contract only (selling a product in a market I know well so plenty of work) but there is another on the horizon, plus maybe a couple of others.

I read to be self employed, I can't earn more than 80% from one source - what happens if I only have the one contract ?

I am confused about IR35 - will this apply to me ?

Do I go Sole Trader or start up a new Limited Liability Company ?

From a tax perspective, what is the best option and how will I be taxed as I have only ever been paid by PAYE ?

thanks in advance !

Pennywise

Many accountants give a free initial consultation. Book appointments with 2 or 3 local ones and go and ask them these questions. Whichever accountant you feel most comfortable with gets your business for the accounts preparation and tax returns when the time comes.

CannyJock

Balders33 wrote: »

Im being made redundant, and I've been offerred the opportunity to go self employed on a Consultancy basis, however I have the following questions:

I will be starting with one contract only (selling a product in a market I know well so plenty of work) but there is another on the horizon, plus maybe a couple of others.

I read to be self employed, I can't earn more than 80% from one source - what happens if I only have the one contract ?

I am confused about IR35 - will this apply to me ?

Do I go Sole Trader or start up a new Limited Liability Company ?

From a tax perspective, what is the best option and how will I be taxed as I have only ever been paid by PAYE ?

thanks in advance !

If you can find a local accountant who talks straight and gives you clear answers, they'll help keep you right.

Tax benefits of Ltd company for small business is being practically eliminated with the lower rate of corporation tax being scrapped in 6 weeks time.

There's some safeguards in being a Limited company against any legal actions, but there's also some extra compliance issues that you need to be aware of - ditto in operating PAYE.

Simplest option is to be self-employed - biggest potential downfall is that you forget to save away for your tax bill in a high interest savings account and get landed with a big bill. Apart from that, being self-employed is simple enough.

IR35 covers working through an intermediary where you would normally be an employee. Your redundancy status makes it interesting. The more contracts you can obtain, the stronger your argument that you're not just being paid indirectly to avoid PAYE and Employer NIC.

Straight talking accountant should be your next stop

Balders33

Thanks for the replies.

If I do go self employed, then it will just be me on my own working as a Consultant - is this where the IR35 issue rears its ugly head ?

Its a little catch 22, because I'll only be working for 2-3 people at any one time and the duration of the work will probably be 6 months plus.

Therefore if I need to pay the same as PAYE, it means it may be a non starter, or I'll earn considerably less than currently or I up my rate to compensate and risk losing potential work.

The problem is that I am at that crossroads where I am still being offerred potential permanent positions, but I want to take the plunge to be self employed, but if the risk/reward ratio is not in my favour, I may go permanent employee again.

LisaContractorUmbrella

Hi Balders33

IR35 is used to determine whether or not you are working as a 'disguised' employee and therefore should be receiving payment through PAYE. There are a number of guides that will help you determine your status including on the Inland Revenue website itself; It basically comes down to how much control the client has over your working practises and to what degree you have integrated with the client's employees. If you are inside IR35 you will have to receive payment through PAYE even if you have your own Limited Company and, as both employee and employer, you will be responsible for both employee's and employer's national insurance.

HTH