Self Employed - Status Help Please !!

Pennywise

dori2o wrote: »

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

No, please don't tell me you really think that? It's like asking Turkeys to vote for christmas. Do you really think a tax inspector will give impartial advice? My experience in over 25 years dealing with tax inspectors is that they always decide in their favour and the taxpayer has to fight to get the "true" position, hence the need for accountants and tax consultants to argue against the tax inspectors.

Bertiesmalls

Thanks all - have spoken to another Accountant who has advised that they are 99% sure I would be classed as employee not Self Employed as there is no right of substitution. My clients want me for my specialist knowledge so therefore it would be difficult for me to send another person.

I've therefore contacted the IR and am awaiting a response.

Chappers - The contract I have drawn up basically isn't an IR35 contract of service. Basically fixed term 12 months, one month either way on notice, fixed fee, basic description of services etc but no substitution clause.

I would attend management meetings for Client 2 offerring advice, but also generating products from third parties and implementing them. I provide my own equipment and work from home and am free, subject to confidentiality to work for other people.

I'm now thinking it will be safer to go down the PAYE route and am raising this with my clients, as I wouldn't have a great deal of business expenses, so it is only the extra NI for me and also 12.8% for my Client. The hit on that initially will far outweigh any subsequent potential HMRC ruling if I'm subsequently found to be an employee.

amf

Pennywise wrote: »

No, please don't tell me you really think that? It's like asking Turkeys to vote for christmas. Do you really think a tax inspector will give impartial advice? My experience in over 25 years dealing with tax inspectors is that they always decide in their favour and the taxpayer has to fight to get the "true" position, hence the need for accountants and tax consultants to argue against the tax inspectors.

I have, over a long period, believed your posts to be helpful, thoughtful and sound. Your comments above I find depart from your previous form.

If you really believe what you have written in this instance, will you please explain why it is in a Status Inspector's interest to issue an opinion of employee, when the individual is truly self employed? Why is it in his favour to give an incorrect opinion? Surely it's a waste of his/her time to fight for something he/she believes to be incorrect, bearing in mind he/she is not the final arbiter on this issue.

A very poor post....certainly not up to your usual standard!

Bertiesmalls

From my perspective, annd I stress this is just my personal view, I found the post re asking HMRC very helpfull.

At the end of the day only the HMRC can decide - an Accountant can advise but you still can't take that risk away, even a specialist IR35 company have not won 100% of cases contested.

The only way to be 100% safe is to get a ruling from HMRC.

To put it into context, Accountants have said to me although there is a risk I should still do it - is that not the same as Turkeys voting for Xmas ? They will earn money if they take their advise or they won't earn if I decide to go down the PAYE route !

The only way I can remove the potential risk is the HMRC in my opinion and that's why I have done it. I can't live with thousands of pounds potentially at risk no matter how small that risk is.

chappers

Bertie very good point about substitution, it does carry a lot of weight but doesn't have to be the only deciding factor, how does going PAYE affect your other contracts.
Really you should be reviewing each of your contracts to find out if they are inside or outside the rules of IR35, with maybe a view to re writing them if they fail.
Have you tried contacting an IR35 specialist, as I said you should really be reviewing each new contract to check for compliance.
Becoming employed doesn't necessarily mean you can't claim for your expenses you will just have to go through the company's expense system and be reimbursed to you rather than set against your tax liabilities.

Bertiesmalls

Chappers - the substitution clause is an interesting one for me. I understand its relevence and how much weight it carries, but if I'm setting up a Consultancy offerring specialist advice, it would in practice be difficult to provide a replacement with the right knowledge as there is a limited pool of people with this knowledge and they are all probably employed !!!

It's the good old chicken and egg - I'd love to employ people and that would satisfy the substitution clause, but if you are trying to build a business, I can't afford to employ people if there is no work for them to do. I could outsource the substitution if needed as I know of one other specialist Consultancy in my field, but again it would cost me more than I would be earning !

You just can't win

amf

You seem to have a good grasp of the relevance of the issue of substitution - one of the main factors in deciding this issue. There has to be a real and unfettered right of substitution for this issue to sway the opinion towards self employed. Anything less will be, at best, just a pointer. It would also be helpful if you could (and did) bring someone in to assist - this would be highly suggestive of self employment.

I take it things are not looking too rosy on the other main areas - control (over where/when/how the work is to be done) and financial risk (method of payment, correcting faulty work, liability if the client incurs a loss because of bad advice, etc)?

You might want to try running the HMRC ESI tool https://esi2calculator.hmrc.gov.uk/esi/app/landing-page.html Remember that the opinion is only as good as the veracity of your answers to the questions.

chappers

As someone else said earlier there is as much burden on the client to comply as there is with the contractor, with regards to substitution they may stipulate that they only want you working for them and then in that case I would feel pretty sure that they should be employing you.
I assume though that being employed is not too much of a problem for either yourself or your client.

Bertiesmalls

Gods this is taking over my life at the moment !!

Thinking this through, if I'm inside IR35, then theoretically, I would be no worse off operating as a limited company than I would be as a Sole Trader who is ruled as employed as the TAX and NI is roughly the same? Takes the risk away from my client aswell.

On the basis that the only extra will be me paying my own Employers NI, but there is the 5% expense allowance that would negate some of that, plus I will be able to claim some expenses i.e travelling, susbsistence etc, that wouldn't be allowable under Sole Trader being found as Employed.

I think I've got my head around the inside IR35 calculation, and I'm now looking at what I need to do. I'm contemplating going down the limited route, get my contracts cleared for IR35 accordingy and then account on that basis. I don't want to use an umbrella company because I will be looking for short term work, i.e one off jobs for 2/3 days which I'm positive will be outside IR35.

So how does this work in practice - If I'm deemed inside IR35, then presumeably I forget the dividend route and pay myself a monthly salary - how does this work under PAYE, presumeably my accountant sorts this on a monthly/quarterly basis? As long as I pay myself less than I work out what my projected annual salary after Tax, NI etc then at the end of the tax year, there will be a nice little sum to take out ? Or if I need to, and I'm ahead, I can take it as a dividend and account for it as PAYE at the end of the year ?

Finally, expenses - I am presuming that all expenses billed to and paid for by my clients are counted as income and then deducted as expenses (IR35 guide refers to these as "which you could have claimed personally if the worker had been an employee of the client and had paid for them yourself") and then if I have expenses that I have personally and can't bill to a client i.e travel for meetings with potential clients then this is deducted (IR35 guide refers to "expenses you received from your company or partnership in the year which are already taxable as employment income")

If I work on this basis and I get a nice surprise that I'm outside IR35, I'll take that as a huge "brucie bonus" :T

Views ?

Bertiesmalls

Sorry, just a few more questions:

If I set up my own Ltd Company, get a IR35 ruling, if I'm inside when do I have to pay PAYE payments and how do I go about it ?

Do I simply do it at the end of the financial year or do I have to do it monthly registered as PAYE within the 14 day deadline after the preceeding month (this may have cashflow issues as I'll bill at the end of the month on payment terms of 14 days)

What happens in the interim period while I'm waiting for a ruling - do I pay myself as if I'm outside IR35 and then recalculate if I'm within (obviously saving the difference I've calculated should I be inside)

I've worked the figures out and I'll be worse off than being an Employee obviously, but I don't want to go down the Umbrella route as I will get short term work outside of IR35 - the odd days for a few clients and I want to retain control. The money I will be worse off more or less compensates for the fees of an umbrella company - is this right to have my own company ?

And if anyone can comment on my previous post, I'd be much obliged.