Super dumb question re. employment status/IR35 Super dumb question re. employment status/IR35 - Page 2
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  1. #11

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    Thank you for your replies chaps.

    So I have now learnt about umbrella companies- I have never come across them before. I am slightly confused as to their purpose however. Are they for contractors who fail the self employment/sole trader test, but do not want to cause their end client the hassle of having to formally employee them? So they are employed by the UC instead. So HMRC gets the same tax as if they were an employee, via the umbrella company. Is that it?

    And if you are legitimately self employed, then joining an umbrella company is a dumb idea?

    Also- nobody has yet responded to the main Q of my original post- can I the gov.uk employment status checker to check BOTH whether a) I could get away with incorporating or b) whether I should even be self employed at this time (i.e., perhaps I should join a UC?). And whatever 'answer' it spits out, I would of course write to HMRC and let them know what I am doing, so I have this up my sleeve in case they decide to query my status in the future.

    @50openstrike you did mention that incorporating is probably a bad idea even if I can, but I would like to understand if it is an option for me at all, even if it ends up not being worth it.

  2. #12

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    Quote Originally Posted by proudfeet View Post
    Also, my client is outside the EU. Is this relevant?
    I would think that this is very relevant and I'd very much like to hear what others think.

    Here's my view... and I must stress that this is a view, not proven and not tested: if your client is outside the EU, and has no legal entity in the EU, then I can't see how IR35 would apply... I don't see how could you be a disguised employee of a company from whom you are so remote.

    If that is true... then incorporation would make sense for you, because the "old set up" where a contractor is employed by his own limited company and receives a minimal salary topped up with dividends is tax efficient.

    It's my understanding that contractors who are outside IR35 will continue their limited companies, but contractors who are inside should work for an umbrella.

    If you can't be inside IR35 by virtue of your client being outside the EU, then incorporation is the right thing for you.

    What does the panel think about my view that a client outside the EU, that has no legal entity in the EU, must be outside IR35 ?

    p.s. not trying to hijack the thread, just trying to pull to the fore something that I think is very pertinent about the OP's situation.

    p.p.s. I mention your client having a legal entity inside the EU because I imagine that HMRC would say that you are a disguised employee of ClientCo UK if for example your client was ClientCo USA but they have a subsidiary called ClientCo UK.

    Sorry for being long-winded!

    EDIT: see also, https://www.contractoruk.com/forums/...u-clients.html
    Last edited by Platypus; 12th February 2020 at 06:33.

  3. #13

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    Quote Originally Posted by proudfeet View Post
    Thank you for your replies chaps.

    So I have now learnt about umbrella companies- I have never come across them before. I am slightly confused as to their purpose however. Are they for contractors who fail the self employment/sole trader test, but do not want to cause their end client the hassle of having to formally employee them? So they are employed by the UC instead. So HMRC gets the same tax as if they were an employee, via the umbrella company. Is that it?

    And if you are legitimately self employed, then joining an umbrella company is a dumb idea?

    Also- nobody has yet responded to the main Q of my original post- can I the gov.uk employment status checker to check BOTH whether a) I could get away with incorporating or b) whether I should even be self employed at this time (i.e., perhaps I should join a UC?). And whatever 'answer' it spits out, I would of course write to HMRC and let them know what I am doing, so I have this up my sleeve in case they decide to query my status in the future.

    @50openstrike you did mention that incorporating is probably a bad idea even if I can, but I would like to understand if it is an option for me at all, even if it ends up not being worth it.

    Employed vs. self-employed. More of a lifestyle choice IMO. Do you work for yourself or for a master? There are some differences in expenses. If you have to buy your own tools then S-E allows you to do this tax efficiently. Same with a van.

    LTD (incorporated) vs S-E. You work for yourself so not a lifestyle choice. You pay less tax as a LTD, but you have the costs and overhead of running the company (don't underestiante hwat's involved). IR35 is a risk (even with an outside EU client). We have mostly suggested you don't incorporate now as the changes to IR35 are due in April. Also, if you have just one client, and go from PAYE to LTD overnight there might be a risk (although S-E to LTD is not a scenario we see very often).

    Umbrella is simply a way to still be your own boss, although on paper you're employed by the umbrella. As you're already S-E an umbrella makes no sense at all. The only reason why IT contractors use umbrellas is beacuse very few agencies will pay anything other than a UK registered LTD company. They're called umbrella as they 'cover' you from the issues of running your own LTD.

    So yes, for you, joining an umbrella is a dumb idea.
    and setting up a LTD right now also not a great idea as we're not sure how clients in foreign jurisdictions will be handled, adn if you found a UK client you might be forced to use an umbrella if you weren't already S-E. For me you should wiat until there is a stronger reason that tax to incorporate.
    Is beoming a LTD an option. It always is. Anyone can do it. But that doesn't make it right. Read the guides to the right on hwat's involved in a LTD. company. A lot of answers will be there (and more questions).
    See You Next Tuesday

  4. #14

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    Quote Originally Posted by proudfeet View Post
    You are implying that I can simply choose whether to be SE or employee- is this really the case? Are there not strict rules about this?
    You can choose to apply for a job in the expectation that if you get that job you will be an employee. It is your choice whether to apply or not.

    Equally you can choose to run your own business which could sell goods and/or services to customers in which case you will be self-employed. It is your choice whether to run the business or not.

    Just because HMRC might deem you one way or the other does not alter the way in which you operate in order to earn your crust.

  5. #15

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    Quote Originally Posted by openstrike View Post
    You can choose to apply for a job in the expectation that if you get that job you will be an employee. It is your choice whether to apply or not.

    Equally you can choose to run your own business which could sell goods and/or services to customers in which case you will be self-employed. It is your choice whether to run the business or not.

    Just because HMRC might deem you one way or the other does not alter the way in which you operate in order to earn your crust.
    if you're self-employed as opposed to a LTD company HMRC arent interested in, or able to, apply IR35. Without the LTD. company there is no intermediary.
    HMRCs opinion is moot for S-E people. They also pay broadly the same tax as an employee.
    See You Next Tuesday

  6. #16

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    Thanks chaps, I am very grateful for your helpful answers. I wish I could shake all your hands (followed swiftly by some hand sanitiser, can't be too safe these days).

    When I'm asking about SE vs EE vs LTD I'm aware that this is a choice to the extent that I can find new work which suits my preferences, but I am very happy with the client I have. I'm trying to find the best option for me which allows me to continue doing exactly what I'm doing so far.

    Is my understanding of umbrella corps correct? They are useful for two reasons:

    1) You are currently employed and want to be your own boss but don't want the hassle of being SE/LTD
    2) If your client only wants to pay a UK company and you would be inside IR35 so don't have the option of running your own Ltd

    Quote Originally Posted by Platypus View Post
    if your client is outside the EU, and has no legal entity in the EU, then I can't see how IR35 would apply... I don't see how could you be a disguised employee of a company from whom you are so remote..
    An interesting idea. How would I go about verifying if this was indeed the case? I would also be interested what the brain trust thinks on this

    Quote Originally Posted by Lance View Post
    You pay less tax as a LTD, but you have the costs and overhead of running the company (don't underestiante hwat's involved)
    Would you be able to elaborate a little? Annual accounts and tax return- if its a Personal Service company these presumably are very simply and can be done in one day per year. Perhaps sorting out the £12k salary and dividends results in a lot of paperwork? Are the dividend payments much of a hassle? Anything else I'm missing?

    On a wider note, if I was willing to part with some £ (but not too much if possible!) to consult an expert on these matters, any suggestions? Perhaps there are experts on these forums it might be worth me PMing?
    Last edited by proudfeet; 13th February 2020 at 04:14.

  7. #17

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    Quote Originally Posted by proudfeet View Post
    T


    Would you be able to elaborate a little? Annual accounts and tax return- if its a Personal Service company these presumably are very simply and can be done in one day per year. Perhaps sorting out the £12k salary and dividends results in a lot of paperwork? Are the dividend payments much of a hassle? Anything else I'm missing?

    On a wider note, if I was willing to part with some £ (but not too much if possible!) to consult an expert on these matters, any suggestions? Perhaps there are experts on these forums it might be worth me PMing?
    Read the guides to the right. Start with the First Timers.
    And pay attention to the IR35 changes due in under two months.

    When you've digested those you'll be better able to ask specific questions rather than asking for vague advice. The problem with giving advice is we don't know, nor want to know, your entire personal circumstance. You need to decide.
    And as said before, you are rare. I suspect most people on here being forced to go via umbrella would much rather be true self-employed like you, but it's not something that is usually available to us.
    See You Next Tuesday

  8. #18

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    Quote Originally Posted by Lance View Post
    Read the guides to the right. Start with the First Timers.
    And pay attention to the IR35 changes due in under two months.

    When you've digested those you'll be better able to ask specific questions rather than asking for vague advice. The problem with giving advice is we don't know, nor want to know, your entire personal circumstance. You need to decide.
    And as said before, you are rare. I suspect most people on here being forced to go via umbrella would much rather be true self-employed like you, but it's not something that is usually available to us.
    Thank you, and indeed I was being lazy not reading the guides, which I have now done. My apologies.

    I am going to consult expert advice re. IR35 due to the peculiar situation I am in of my client being outside the EU and therefore outside of IR35 legislation, yet the client does have a subsidiary in the EU.

    I do have one more (which I think is specific!) question. I cannot find reference to this in the guides. I am trying to determine whether there are any legal/HMRC restrictions between me being sole trader or employee (i.e., ignoring IR35 and PSCs).

    Lance, you did mention that "HMRCs opinion is moot for S-E people. They also pay broadly the same tax as an employee.". So it appears the answer is, I can do whichever I feel like. But in this case, why does the gov.uk employment status checker (https://www.tax.service.gov.uk/check...tatus-for-tax/), have the following first question:

    What do you want to find out?
    -If the off-payroll working rules (IR35) apply to a contract
    -If some work is classed as employment or self-employment for tax purposes

    This line "if some work is classed as employment or self-employment for tax purposes" strongly suggests that employment status isn't just a matter of choice even if you are not trading through an intermediary.
    Last edited by proudfeet; 17th February 2020 at 06:29.

  9. #19

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    Self employment isn’t strictly a matter of “choice”. Your relationship with the client is generally a matter of fact. If you’re working as self employed but your relationship is more like one of employment then HMRC can seek to ensure you are taxed as an employee.

    However, for sole traders the risk is on the client, not the sole trader. It’s not the sole trader who is avoiding tax, it’s the client (who can be left on the hook for unpaid NIC and other employment rights).

  10. #20

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    Quote Originally Posted by TheCyclingProgrammer View Post
    Self employment isn’t strictly a matter of “choice”. Your relationship with the client is generally a matter of fact. If you’re working as self employed but your relationship is more like one of employment then HMRC can seek to ensure you are taxed as an employee.

    However, for sole traders the risk is on the client, not the sole trader. It’s not the sole trader who is avoiding tax, it’s the client (who can be left on the hook for unpaid NIC and other employment rights).
    Surely it's not about avoiding tax, is about whether or not the relationship and the engagement is one of employment? So I contend that it is theoretically possible to be a sole trader working for a client in an employment like role and it would be the sole trader who is liable for the tax, just as IR35 made us (or our LTD's in the past) liable.

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