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Sole Trader VS Limited - ongoing long term contract / IR35

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    Sole Trader VS Limited - ongoing long term contract / IR35

    Evening all,


    I have some long term work available for a US company, working from home in the UK, paid by BACS.

    Original intention was to setup as a Sole Trader and bill US company once a month for hours worked @ £15 per hour.

    Over half the accountants i've been speaking to for the last week, to get everything setup, have advised a Limited company would be better, lets me build up a company history, and gives me protection should anything go awry, and even after their fees (£95-195 p/m circa) it still slightly beats yearly earnings as a sole trader. They advise IR35 shouldn't ever effect me as working from the UK, with no employee benefits or place as work, as company is in the US.

    As its only £15 an hour, the yearly income only differs by £200 odd comparing the Sole Trade VS Limited. I understand if I earnt a lot more, limited would offer much greater tax breaks.

    So given the above is there any reason not to go ahead with my original intention as a sole trader, seems much simpler?

    #2
    I'm sure there could be some arguments for both sides...but I guess I think if the end client is happy to pay you as a sole trader (for UK contractors this often isn't an option), then yeah your logic seems fairly sound to me.

    Sole trader, especially if you don't register for VAT (probably not necessary if all sales to US) or as an employer (as a sole trader you don't employ yourself), should be a lot simpler.

    NB did give me a thought for the future. As I understand it one of the main reasons why hardly any UK based contractors working for UK based clients are sole traders revolves around IR35. If Joe Bloggs sole trader works for huge corporate, and HMRC then decides the working relationship is really one of employer/emploee, huge corporate gets clobbered for the employment taxes. If Joe Bloggs works via Joe Bloggs Ltd for huge corporate, and HMRC then decides the working relationship is really one of employer/employee, Joe Bloggs Ltd gets clobbered for the employment taxes.

    Given that final statement will no longer be true post April 2020, maybe sole trader contractors will make a big comeback?! Or have I missed something?

    Comment


      #3
      I would personally never work for a North American company as a sole trader due to the exposure that creates. That said, it partly depends on the nature of the work and your personal judgement about risk. Otherwise, at that hourly rate, I dare say the burden of a company is hardly worth the effort. Absent your specific context, I fully agree that sole trading would be the way to go, ordinarily. Incidentally, IR35 does need to be considered and none of those factors you cite are, in themselves, strong arguments against the contract being within IR35, so if you do go with a company, get your contract reviewed. As a final thought, if this is long-term relationship and both parties are happy with employment, another option would be a PAYE direct scheme (no employer’s NI, only PAYE and employee’s NI).

      Comment


        #4
        Originally posted by Maslins View Post
        If Joe Bloggs works via Joe Bloggs Ltd for huge corporate, and HMRC then decides the working relationship is really one of employer/employee, Joe Bloggs Ltd gets clobbered for the employment taxes.

        Given that final statement will no longer be true post April 2020, maybe sole trader contractors will make a big comeback?! Or have I missed something?
        I don’t think the former is a likely scenario and, with an agency interposed, the income must be treated as earnings from employment if (merely the right of) SDC applies (ITEPA).

        Comment


          #5
          As JB said, liability is a big concern here, especially if the contract is a US contract. You can lose a lot of money in a US courtroom.

          If there is no risk of the US company or one of their clients or someone who is harmed by them suing you, then you don't have to worry about liability. If there is such risk at all, go with Ltd to protect yourself.

          Comment


            #6
            Originally posted by Maslins View Post
            NB did give me a thought for the future. As I understand it one of the main reasons why hardly any UK based contractors working for UK based clients are sole traders revolves around IR35. If Joe Bloggs sole trader works for huge corporate, and HMRC then decides the working relationship is really one of employer/emploee, huge corporate gets clobbered for the employment taxes. If Joe Bloggs works via Joe Bloggs Ltd for huge corporate, and HMRC then decides the working relationship is really one of employer/employee, Joe Bloggs Ltd gets clobbered for the employment taxes.

            Given that final statement will no longer be true post April 2020, maybe sole trader contractors will make a big comeback?! Or have I missed something?
            It's a possibility, but there's more at stake than ER NI. There's also holiday pay, maternity, etc. It's not just HMRC, it's that Mr Sole Trader could decide he wants to take them to an employment tribunal and claim he was an employee, and grab employment rights.

            So huge corporate is likely to still want Ltd Co or umbrella contractors.

            Comment


              #7
              Originally posted by WordIsBond View Post
              Mr Sole Trader could decide he wants to take them to an employment tribunal and claim he was an employee, and grab employment rights.
              Couldn't Mr Ltd Co owner try that too though? Ie is that a differential between sole trader/Ltd Co?

              Comment


                #8
                Originally posted by Maslins View Post
                I'm sure there could be some arguments for both sides...but I guess I think if the end client is happy to pay you as a sole trader (for UK contractors this often isn't an option), then yeah your logic seems fairly sound to me.

                Sole trader, especially if you don't register for VAT (probably not necessary if all sales to US) or as an employer (as a sole trader you don't employ yourself), should be a lot simpler.

                NB did give me a thought for the future. As I understand it one of the main reasons why hardly any UK based contractors working for UK based clients are sole traders revolves around IR35. If Joe Bloggs sole trader works for huge corporate, and HMRC then decides the working relationship is really one of employer/emploee, huge corporate gets clobbered for the employment taxes. If Joe Bloggs works via Joe Bloggs Ltd for huge corporate, and HMRC then decides the working relationship is really one of employer/employee, Joe Bloggs Ltd gets clobbered for the employment taxes.

                Given that final statement will no longer be true post April 2020, maybe sole trader contractors will make a big comeback?! Or have I missed something?
                Sole trader is an option and end client happy whichever I choose, thanks for the useful input

                What is happening post April 2020 RE limited not getting the clobbering for employment taxes?

                Comment


                  #9
                  Originally posted by jamesbrown View Post
                  I would personally never work for a North American company as a sole trader due to the exposure that creates. That said, it partly depends on the nature of the work and your personal judgement about risk. Otherwise, at that hourly rate, I dare say the burden of a company is hardly worth the effort. Absent your specific context, I fully agree that sole trading would be the way to go, ordinarily. Incidentally, IR35 does need to be considered and none of those factors you cite are, in themselves, strong arguments against the contract being within IR35, so if you do go with a company, get your contract reviewed. As a final thought, if this is long-term relationship and both parties are happy with employment, another option would be a PAYE direct scheme (no employer’s NI, only PAYE and employee’s NI).

                  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!

                  Comment


                    #10
                    Originally posted by WordIsBond View Post
                    As JB said, liability is a big concern here, especially if the contract is a US contract. You can lose a lot of money in a US courtroom.

                    If there is no risk of the US company or one of their clients or someone who is harmed by them suing you, then you don't have to worry about liability. If there is such risk at all, go with Ltd to protect yourself.

                    Thanks some good food for thought.

                    Comment

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