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Sole Trader VS Limited - ongoing long term contract / IR35

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    #11
    Originally posted by swissdt View Post
    What is happening post April 2020 RE limited not getting the clobbering for employment taxes?
    The rules for determining whether IR35 applies will change, probably to align with those currently operating in the public sector (broadly speaking). In other words, the client will be responsible for the status decision and the fee payer will be liable for any failure to operate PAYE correctly. In short, YourCo will not be responsible for the status decision, and YourCo will also not be liable for an incorrect decision or a failure to enforce that decision (but more clients will deem more contractors inside, most likely). It's somewhat speculative because we won't see the draft changes to the ITEPA for a month or two. It's even more speculative w/r to a US client and the rules may not change at all if no one in your chain has a UK presence.

    None of that is remotely relevant, though, if you decide to operate as a sole trader, which would certainly be the way to go with a UK client. Just remember to check your PI insurance, because it probably won't cover North America, and proper insurance becomes even more important if you don't have the protection of limited liability.

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      #12
      Originally posted by swissdt View Post
      Thanks James, the work will be software app development, so not much in the way of created exposure.

      I don't think it will be an option, but tell me more about the PAYE direct scheme. Is that under a LTD, or sole trader? I think I came across it on google but got very confused!
      If you don't feel the exposure is too great, sole trading is probably the way to go. It's much simpler.

      In terms of a PAYE direct scheme, it basically applies when you have an overseas employer with no UK presence. For tax purposes, you can either register as self-employed and submit a SATR each year or you can ask HMRC to register a personal PAYE scheme (DPNI). Essentially, you will pay employee's NI and PAYE taxes (no employer's NI). However, you may struggle to find someone at HMRC that knows how to set this up, and they will probably tell you to register as self-employed because it saves them having the conversation or working it out .

      PAYE20100 - PAYE Manual - HMRC internal manual - GOV.UK

      Again, I think sole trading is the way to go, notwithstanding personal liability.

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        #13
        Originally posted by Maslins View Post
        Couldn't Mr Ltd Co owner try that too though? Ie is that a differential between sole trader/Ltd Co?
        In theory, yes. In practice, if a contract has been deemed outside IR35 by the client, and if you've been billing them through your Ltd Co and paying tax as a Ltd Co shareholder, it's going to be pretty hard to make that argument.

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          #14
          When considering Limited vs Self -Employed, it is not always just the tax incentives you need to consider. Having a limited company allows you to control your remuneration strategy so you could build up a war chest for periods when you may not have active contracts.

          Many agents and end clients also prefer to deal with a limited company and this could help in establishing new contracts in the future. Limited companies are a separate legal entity under your control and can sometimes offer a level of protection for you as an individual should your business relationship with end clients break down.

          You need to consider what is right for you, the small added responsibility of operating a limited company for the benefits that could be derived, or the perceived simplicity of running your business as a sole trader.

          Happy to speak on the phone if you want to give us a call.
          www.inniaccounts.co.uk

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            #15
            Originally posted by Jess inniAccounts View Post
            the small added responsibility
            Nice pitch, but it isn't a "small added responsibility". It's actually a significant responsibility that ultimately rests with the company director(s), including when accountants are incompetent. Many well-meaning people have been caught by that.

            The primary consideration for the OP should be whether they're comfortable operating without limited liability, especially for a US client. All other considerations point to operating as a sole trader, IMHO.

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              #16
              Originally posted by jamesbrown View Post
              If you don't feel the exposure is too great, sole trading is probably the way to go. It's much simpler.

              In terms of a PAYE direct scheme, it basically applies when you have an overseas employer with no UK presence. For tax purposes, you can either register as self-employed and submit a SATR each year or you can ask HMRC to register a personal PAYE scheme (DPNI). Essentially, you will pay employee's NI and PAYE taxes (no employer's NI). However, you may struggle to find someone at HMRC that knows how to set this up, and they will probably tell you to register as self-employed because it saves them having the conversation or working it out .

              PAYE20100 - PAYE Manual - HMRC internal manual - GOV.UK

              Again, I think sole trading is the way to go, notwithstanding personal liability.

              This post has proved super useful, and sole trading seems to have the edge I so far.


              Here's some rough figures I got based on £15 an hour + 37.5 hours a week take home pay, including the accountancy fees and some basic expenses to get a ball park...

              LTD = £1940 per month
              Sole Trader = £1929 per month


              Any idea on how this would compare with DPNI PAYE scheme? On the above figures how much tax and NI per month/year? what would the US company have to pay? All got very confusing when I was reading about!

              Comment


                #17
                Originally posted by jamesbrown View Post
                Nice pitch, but it isn't a "small added responsibility". It's actually a significant responsibility that ultimately rests with the company director(s), including when accountants are incompetent. Many well-meaning people have been caught by that.

                The primary consideration for the OP should be whether they're comfortable operating without limited liability, especially for a US client. All other considerations point to operating as a sole trader, IMHO.

                Thanks, I also need to get some PI quotes which may prove useful, and get an idea of costings.

                Comment


                  #18
                  Originally posted by Jess inniAccounts View Post
                  When considering Limited vs Self -Employed, it is not always just the tax incentives you need to consider. Having a limited company allows you to control your remuneration strategy so you could build up a war chest for periods when you may not have active contracts.

                  Many agents and end clients also prefer to deal with a limited company and this could help in establishing new contracts in the future. Limited companies are a separate legal entity under your control and can sometimes offer a level of protection for you as an individual should your business relationship with end clients break down.

                  You need to consider what is right for you, the small added responsibility of operating a limited company for the benefits that could be derived, or the perceived simplicity of running your business as a sole trader.

                  Happy to speak on the phone if you want to give us a call.
                  Thanks Jess, i'll take all the info on board

                  Comment


                    #19
                    Originally posted by swissdt View Post
                    Any idea on how this would compare with DPNI PAYE scheme? On the above figures how much tax and NI per month/year? what would the US company have to pay? All got very confusing when I was reading about!
                    I think you can basically plug that into any online tax calculator for PAYE + EeNI (most show ErNI too as an FYI, but you won't pay that). The US company won't pay anything - there's no ErNI. They just pay you into your personal bank account and you deal with payments to HMRC via the PAYE reference (DPNI scheme).

                    Like this, for example (with 15 per hour based on 37.5 hours per week):

                    UK Salary Tax Calculator 2018/2019/2020: Calculate my take home pay : gross salary of GBP29250 (2019)

                    Obviously, that is making some assumptions to extrapolate a monthly or annual amount, but it shows £1952 per month.

                    I highly doubt there's much to separate any of these options, financially. There is a bigger separation between options as you start to move up the income scale.

                    At the same time, there is quite a big difference in hassle between these options, with a Ltd being the most hassle, by far. At the same time, limited liability is a super important protection.

                    Anyway, at this point, I think you probably have the info you need - good luck!

                    Comment


                      #20
                      Originally posted by jamesbrown View Post
                      I think you can basically plug that into any online tax calculator for PAYE + EeNI (most show ErNI too as an FYI, but you won't pay that). The US company won't pay anything - there's no ErNI. They just pay you into your personal bank account and you deal with payments to HMRC via the PAYE reference (DPNI scheme).

                      Like this, for example (with 15 per hour based on 37.5 hours per week):

                      UK Salary Tax Calculator 2018/2019/2020: Calculate my take home pay : gross salary of GBP29250 (2019)

                      Obviously, that is making some assumptions to extrapolate a monthly or annual amount, but it shows £1952 per month.

                      I highly doubt there's much to separate any of these options, financially. There is a bigger separation between options as you start to move up the income scale.

                      At the same time, there is quite a big difference in hassle between these options, with a Ltd being the most hassle, by far. At the same time, limited liability is a super important protection.

                      Anyway, at this point, I think you probably have the info you need - good luck!

                      Thanks James, i very much doubt the US company would go for the DPNI, as its a contract, but I can certainly broach the idea! If they could employ me would they get hit with tax US end on the payment to me? or is that IRS questioning material?

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