Switching From Perm To Contractor/Supplier For Current Employer

**northernladuk** · 13 June 2011, 20:41

Sounds pretty good so far but what is the benefit to your employer (soon to be client) in all this? He isn't going to give in and have it cost him more if there was no benefit to him. Are you sure he won't use this as a reason to bin you off without having to pay redundancy? Plan on putting some penalties in to make sure you work harder for your dollar than you do now?

Are you skilled in the negotiation/delivery of a fixed price contract to make sure you don't screw yourself over? Are you tough enough to fight it through if it does go wrong and warchest big enough to last when he pulls the plug on you?

Without the benefit to the client I would wonder why he will allow you to do this.

**chrysalis** · 13 June 2011, 21:00

They have thought about out sourcing before, so I saw the opportunity and made a suggestion. The FD doesnt see the ROI on IT spend and wants better visibility, we both agreed that fixed price would help acheive this and want to restructure the department accordingly. They also like the idea of being able to scale up and down as needed for projects. The directors are a good bunch and we have a solid trust relationship, so I can't see it going sour at all.

So in short, the benefit to them is a trusted supplier that gives them better visibility and ROI on their spend. It also allows them to spead risk a little. They can't argue that it will cost more, because they can't really show what they are getting for their spend as it is. We are a trusted entity to them and they know we will deliver.

**Taxless** · 13 June 2011, 21:14

I suppose it depends on the numbers but the employer is saving employer's NIC and with PAYE out of the equation he could pay chrysalis a bit more and still be better off financially. He also saves on paid holidays, sick pay etc..

This is a big step to take and so I hope you are happy about your longer term situation, with or without the current employer in the frame.

How long do you anticipate this project lasting and are they giving you any indication that other work is likley to come your way after this is finished?

**LisaContractorUmbrella** · 14 June 2011, 07:43

Originally posted by chrysalis View Post

I am currently in the fortunate situation where I have the opportunity to switch from a permanent employee to self employed but working for my current employer on the basis that my company can provide a scalable software development service. I am aware that this makes me a strong candidate for IR35, but feel that I could possibly avoid it legitimately.

We are still in the process of working out the legal/contract side of things so would appreciate any advice on where I am going wrong. So far these are the ideas;

1/ Myself plus another form a LTD company
2/ We have a contract between current employer and our company to provide a service.
3/ We enter into fixed price contracts on a per project basis.
4/ Payments are scheduled based on deliverables.
5/ A PO *could* be raised at the begining of each project.
6/ I use my own equipment.
7/ They do not dictate my working hours.
8/ The working location is flexible, so early stages of projects will require on-site presence, where as later stages when developing software will be done off site etc.

How does this sound so far? What else should I be considering? Over time we hope to be able to engage with other clients and thus invoice other clients.

All help and advice is appreciated.

Thank you.

Can I ask whether the new role that you will be taking on will be very different from what you undertook as a permanent employee?

**Wanderer** · 14 June 2011, 08:13

Originally posted by chrysalis View Post

We are still in the process of working out the legal/contract side of things so would appreciate any advice on where I am going wrong. So far these are the ideas;

1/ Myself plus another form a LTD company
2/ We have a contract between current employer and our company to provide a service.
3/ We enter into fixed price contracts on a per project basis.
4/ Payments are scheduled based on deliverables.
5/ A PO *could* be raised at the begining of each project.
6/ I use my own equipment.
7/ They do not dictate my working hours.
8/ The working location is flexible, so early stages of projects will require on-site presence, where as later stages when developing software will be done off site etc.

How does this sound so far? What else should I be considering?

You are correct that this is normally a red rag to HMRC but as long as the reality of the situation is that you are genuinely going into business then you might have a good case. Positive pointers are:

1/ Subcontracting the work (right of substitution rather than just a contract for your services personally)
3/ Fixed price contracts per project are good. PCG have some templates you can use. Watch out for ownership of the intellectual property/code that you produce. You need to aim to own the copyright yourself and give the company a perpetual licence to use the code or something like that. Get some legal advice on this because it's important.
5/ a good pointer is if you can make a profit/loss by finishing the project early/late and you are responsible for fixing cockups on your own time.
6/ and 7/ are good

It would help immensely if you have other clients on the go at the same time as you would be more of a business than a disguised employee.

**b0redom** · 14 June 2011, 10:22

Am I the only one who is thinking that the employer could be about to say, "Right, so you're now a LTD company and have resigned. We'll call you when we've got some work. Bye."

It might be all above board, but I'd want a PO up front or some contractual guarantee at least. Sounds like a cheap way to make someone redundant IMO.

**northernladuk** · 14 June 2011, 10:36

Originally posted by b0redom View Post

Am I the only one who is thinking that the employer could be about to say, "Right, so you're now a LTD company and have resigned. We'll call you when we've got some work. Bye."

It might be all above board, but I'd want a PO up front or some contractual guarantee at least. Sounds like a cheap way to make someone redundant IMO.

Nope I said it as well

Sounds pretty good so far but what is the benefit to your employer (soon to be client) in all this? He isn't going to give in and have it cost him more if there was no benefit to him. Are you sure he won't use this as a reason to bin you off without having to pay redundancy? Plan on putting some penalties in to make sure you work harder for your dollar than you do now?

**TykeMerc** · 14 June 2011, 12:40

Originally posted by b0redom View Post

Am I the only one who is thinking that the employer could be about to say, "Right, so you're now a LTD company and have resigned. We'll call you when we've got some work. Bye."

It might be all above board, but I'd want a PO up front or some contractual guarantee at least. Sounds like a cheap way to make someone redundant IMO.

Nope and I'm sure I won't be the last it occurs to either. The risk that it's an easy way to bin the OP to avoid redundancy is high, it's entirely likely that the management see a finite end to the need for anyone for this work.

IR35 was set up to target people who leave permie jobs to instantly return doing the same (or broadly the same) work as contractors. Unless the contracted work is dramatically different I think there's a real risk an IR35 investigation could cause massive problems. If there's guaranteed work then the MOO test for IR35 purposes would be a big fail too.
I'm quite concerned about the whole scenario to be honest.

**chrysalis** · 14 June 2011, 13:03

Regarding the redundancy etc, I am not concerned by the whole thing. It has been acknowledged that I am the highly skilled and highly productive member of the team and am involved in helping them back fill some positions with support programmers. The intention is that we take ownership of the most important project they have and continue to push it forward as the other members of the team are not as skilled and some have decided to move on. As part of the take over we can scale up and then back down when budget/timescales are available.

The PO will definitely come upfront. I wont be handing my notice in until I see that PO and the overall contract. Some of these details are yet to be worked out, mostly around the timing.

Sounds pretty good so far but what is the benefit to your employer (soon to be client) in all this? He isn't going to give in and have it cost him more if there was no benefit to him

The benefit comes in quick scalability and controlling cost. They have a massive problem with some contractors they are currently using that they can't really see where the spend is going, they know that I deliver what I say I will and when I say I will - that in its self, whether it costs them slightly more or not, is valuable to them as they dont get it from other staff. They have a strategic project that needs to be completed and I have presented a solution to their problem that they like. They are also quite entrepreneurial so like to hear offers/ideas like this.

Can I ask whether the new role that you will be taking on will be very different from what you undertook as a permanent employee?

Yes, mostly. I will be doing more in the new LTD Co role than I can at the moment.

IR35 was set up to target people who leave permie jobs to instantly return doing the same (or broadly the same) work as contractors

It is this that makes me a prime target for IR35, so to play safe - should I declare this from the start, then when we get another client, future contracts will not be IR35? As there are 2 of us in the LTD Co, how should I think about paying myself with the IR35 in mind? The agreement we are looking at is PO upfront to begin the project (say 15% of overall value), then PO/payment per agreed deliverable with a final PO on handover/signoff.

Switching From Perm To Contractor/Supplier For Current Employer