Self Employed - Status Help Please !!

Bertiesmalls

I decided to go down the Sole Trader route as I was concerned in respect of IR35 and was advised, researched that IR35 did not apply to Sole Traders.

I've visited an Accountant and basically he has advised that the HMRC could potentially query my Self Employed status and rule that I am actually an employee. This obviously would mean that I wouldn't have saved enough Tax as I wouldn't be able to offset business expenses and theoretically underpaid NIC 2 and 4 against employee NIC 1 contributions. This also has an impact on clients as they would be subject to a further NIC and tax bill - unsure if they treat their payments to me as net and gross them up to calculate things or look at what should have been paid against what I have paid and charge one party the difference.

The problem I have is the Accountant encouraged me to carry on down the Sole Trader route, but wasn't convinced that I wouldn't have a potential HMRC investigation re the above. Where does that leave me ??

For info, I have 2 clients both on 12 month contracts for a fixed fee per month. I am a specialist in my market within financial services with 20 years experience. Client 1 wants me to introduce potential clients from my contracts to their telecommuications solution including some R&D but the main thrust is getting them customers. I have no set hours or days, I decide when I do the work and use my own equipment and work from home. The other client is developing a new business within my specialist market and wants me to provide technical advice to their IT Developers who are writing their system and obtaining products from the marketplace. The company is not yet trading. Again, no set hours or days, I decide when I work, from home etc.

I've also got 2 more potential clients, one an established business wanting me to offer advice on them entering a new distribution channel within my marketplace and introducing potential customers from my contacts. The other is diversifying and wanting to set up a new business and wants advice etc similar to my current client 2. Agreements on remuneration are not decided - what is the best way to approach this ?

Therefore should I contact HMRC for a ruling as all the info I see on the web and information leaflets points to me being say 75% Self Employed, or would you run the risk ?

Thanks in advance.

Bean_Counter

Have you seen this HMRC booklet, and particualrly the questions on pages 5 & 6?

Pennywise

The first stage is to take proper advice as to whether IR35 would apply if you operated as a limited company. From the way you describe your business, it sounds like it wouldn't anyway. There are several specialists that do IR35 advice - Qdos consulting, Bouer & Cotterill, Accountax, John Antell, to name but four - google for them to get to their websites. IR35 is too specialist for the average accountant to be able to give you a proper answer. Considering that only an exceptionally small number of HMRC challenges are found in their favour, and most of the challenges were hourly paid contractors, then I suspect you are worrying unnecessarily about IR35.

If you set up as a sole trader, HMRC won't be coming after you if they want to argue you are employed. They will investigate your "employer" and if they decide you are an employee, it is the "employer" who gets the tax and NI bill, not you. I think there was a very recent change in the law to say that the tax and NIC you have paid as a sole trader can be used by the employer to reduce their liability, but ultimately the buck stops with the employer. You are safe, it is the employer who hasn't done things properly, not you. No doubt the employer would try to get you to pay their tax/NIC bill, but unless your contract with them includes a clause indemnifying them or saying you'll pay their tax, they can't enforce you to pay.

So, go limited if your IR35 review is favourable. If not, go sole trader. Either way, unless you have some clause in your contract with the employer, you are safe from having to pay their tax.

Bertiesmalls

Thanks Pennywise

I took my original template contract from the net and it had an indemnification clause in respect of Tax and NI and this was the original one used, as I presumed this would safeguard my clients.

As I am setting this up to start imminently, this has hastily been replaced by a further contract excluding this clause. The new contract has a more recent signing date as the start date is in the future so assume this is ok ?

However, I have known my 2 clients for many years, so therefore don't want to be in the position of evading my responsibilities and leaving them with a bill, if that makes sense ?

fengirl_2

You can't have a clause in a contract to indemnify someone if they break the law. Its like giving someone a contarct which says they are allowed to murder people to get money from them! Clearly not.
From the info you have given, all but no. 1 look like genuine self employment. if you are presenting yourself as being from employer no. 1 , then you are probably an employee. As others have said, the onus is on the 'employer' to get status rulings from HMRC and they should do this now before they are lumbered with a big tac and NIC bill.

Bertiesmalls

Hi Fengirl

Not sure if I understand your comment in respect of representing Client 1. Surely if I consult for any business, when communicating with my clients B2B clients, then I have to say I'm representing the company I am consulting for ?

For Client 2, obtaining products in the marketplace for the system development would include representing my Client's company to their B2B clients.

Therefore this would make all consulting that I am doing on an employee basis ?

Confused !!

fengirl_2

I have probably misunderstood what you do - it sounds way outside my experience! However, in general, if you go along with a business card which says you are A B Smith from Acme Ltd, then you are representing yourself as part of Acme Ltd and this would be a 'sign' of employment (abut not exclusively). If you go along and say 'I'm A B Smith and I'm helping Acme Ltd with sourcing widgets', this would be an indication of self employment (although not exclusively!). It is a v complex area and, as I said above, the potential client should square it with HMRC first. You also need to look at your business expenses because most of them could be offset against tax if you were an employee, apart, of course, for travel to and from the employer's premises.

Bertiesmalls

Fengirl - more of the 2nd i.e "I'm BertieSmalls and I'm helping ABC Ltd in developing and introducing their software etc etc do you want to buy it !!

You've confused me again re offsetting business expenses. As an employee, I can't offset business expenses against my personal tax? However if you meant as a Sole Trader working from home, I could offset all reasonable business expenses from my personal tax including travel to the Clients office would make more sense..............is that what you meant ? That's what would be the advantage of Sole Trading, and something amongst other things that HMRC are trying to stop ?

fengirl_2

If you had contracts with these companies which specifically required you to work from home, then all your travel would be tax deductable, as would the running of your home office. The difference between business expenses and employment expenses is that the employment expenses have to be 'necessary', ie there is no element of choice. In a business, the trader himself decides what is necessary to run his business. If we both ran flower shops for instance, I might decide that it was important to have a website and you might decide not to have one - it still means that I can have a deduction for my website. In employment, a key test is 'does everyone who does that job have to incur that cost?', which is much stricter. An example might be a teacher who has to mark work at home and decides to buy a PC to collate all his marks - unless every teacher in the country is also obliged to provide his own PC, then that claim would fail.
With the selling of the software on behalf of ABC, on the face of it, this would be employment - but I do realise these things are not as straightforward as going into PC World and doing a deal with the guy at the counter.
At the end of the day, it all depends on how risky a person you are. Personally, having been HMIT for 26 yrs and seen the pickles people get themselves into, I would always play a straight bat and give potential employers the chance to square the arrangements with HMRC so that I knew where I stood.
I always say its better to owe HMRC than have them owe you - but not if its going to cause you difficulties in the long run.

chappers

Put simpily as you are probably aware IR35 was implemented to prevent people contracting to a single client and then offsetting "business" expenses against their income tax, but more importantly it prevented what were essentially employers from haveing to take responsibility for deducting income tax and NI.

Essentially to pass IR35 you need to not be working as if like an employee there are loads of factors but the basics are how did the contract come about i.e were you employed and then went freelance doing the same job , was the job advertised as a contract, were you employed under contract to replace a redundant employeee and loads more.

As fengirl says disassociation is an important factor ie your own business cards, are you expected to attend management meetings in any capacity other than as an advisor, do you appear on company literature and or directories.

It is acomplicated business and on the face of it you do not appear to be in an IR£% situation.
You have multiple clients, you keep your own hours, from your own office, using your own equipment.

With regards to renumeration you are free to charge them an hourly, daily or contract rate divided into regular payments. Its not the money side of things that matter so much as how you bill them and the other employment criteria.

Your contract is very important if it is drawn up specifically for your work then it probably won't contavene IR35 if it is astandard contract issued to contractors it may be deemed that that is an employment contract.

Are you expected to work certain hours at a certain place and for a certain period of time.

Are you free to take on other contracts or are you tied to the one emplyer (obviously confidentiality clauses may exclude you working for someone else)

Do you provide all your own equipment etc.

Really your accountant is the best person to advise you on your status.

dori2o

Pennywise wrote: »

There are several specialists that do IR35 advice - Qdos consulting, Bouer & Cotterill, Accountax, John Antell, to name but four - google for them to get to their websites.

Or just go to the horses mouth for free advice, contact your HMRC office and ask to speak to a Status Inspector.