Setting up a ltd company for a job I've already started

[yusefkerr]

Hello, after 5 years of being a sole trader, I've just started a contract for a client that I gained through an agency, this is only the second week of the contract.

The agency have told me that they can only pay me for work if I have a limited company or work through an umbrella company. I'd prefer a limited company, but if I set one up today, will I be able to backdate payment for the days I've already worked?

The agency are telling me that this will be fine, but I wondered what other people thought. I've tried contacting HMRC and companies house but they both say they can't advise me on this.

If I can't claim for days worked before the company incorporation date, what should I do?

Thanks in advance for any help.

[kaiser78]

Hello, after 5 years of being a sole trader, I've just started a contract for a client that I gained through an agency, this is only the second week of the contract.

The agency have told me that they can only pay me for work if I have a limited company or work through an umbrella company. I'd prefer a limited company, but if I set one up today, will I be able to backdate payment for the days I've already worked?

The agency are telling me that this will be fine, but I wondered what other people thought. I've tried contacting HMRC and companies house but they both say they can't advise me on this.

If I can't claim for days worked before the company incorporation date, what should I do?

Thanks in advance for any help.

The accountant types on here can be specific, but as a clue, have you spoken to an...accountant ?

[northernladuk]

I'd say go brolly to get this sorted and then when the gig comes to renewal you switch to LTD. Judging by who you have been asking if say you've got quite a bit to learn before the time comes to switch.
Speak to Contractor Umbrella. Lucy from CU posts on here a lot.

I assume you didn't get your contracted checked either?

[northernladuk]

Ugh.. That said if you've no limited company I assume you've signed the contract as you which is your IR35 status pretty much screwed.

There is so much that could be wrong with this scenario but we don't have the details.

[TheCyclingProgrammer]

How did you manage to get to the stage of signing a contract and starting a new gig as a sole trader in the first place?

If the agency have agreed a contract with you personally then AFAICT they are bound by it and have to pay you. They could of course terminate the contract and issue a new one.

Still seems odd to me.

[jamesbrown]

How did you manage to get to the stage of signing a contract and starting a new gig as a sole trader in the first place?

If the agency have agreed a contract with you personally then AFAICT they are bound by it and have to pay you. They could of course terminate the contract and issue a new one.

Still seems odd to me.

To speculate a little, the OP could be onsite with only the promise of a formal contract, in which case they have a lot to learn. As you imply, an agency is unlikely to sign a contract with a sole trader given their potential liability for PAYE and NICs under the ITEPA, and they apparently aren't operating agency PAYE.

Anyway, whatever the situation, the OP would be better off with an umbrella or, as an absolute minimum, a good accountant to help them through it.

That being said, in my non-expert opinion, if the OP does form a company, they can probably invoice for a short period of work completed before the company was formed, providing the work is invoiced after the company is formed (i.e. it depends what the OP means by "backdate payment"). Strictly speaking, it should probably be treated as self-employed income, but the first invoice can be suitably generic (e.g. X days at Y per day), and they're unlikely to get paid otherwise.

[NotAllThere]

You can have pre-formation expenses. So why not pre-formation income? (Ask an accountant - but the answer isn't going to change dependant on you going brolly or limited).

Creating a ltd. company can be done in a day (you purchase an already formed company (off-the-shelf) and take ownership and over as director), and with appropriate professional help isn't that hard to run. I'd always say ltd. over brolly unless the fees you are charging are quite low.

[mudskipper]

Yes, I did this. I started my first gig when CoHo were doing an upgrade which took much longer than expected, so despite applying to set up my company before I started, (a process that should take a few hours) it didn't happen for two weeks. My accountant at the time was quite happy that I could invoice for work done before the company was formed - but obviously you can only do that after you've got the company. (Before NLUK asks, I was working direct, using my own contract template and the client was happy to delay signing until the company was set up)

However, as others have said, if running a company isn't part of your long term plan, then you may be better to consider an umbrella for this role. How certain are you of your IR35 status?

[TheCyclingProgrammer]

To speculate a little, the OP could be onsite with only the promise of a formal contract, in which case they have a lot to learn. As you imply, an agency is unlikely to sign a contract with a sole trader given their potential liability for PAYE and NICs under the ITEPA, and they apparently aren't operating agency PAYE.

Agreed though in this case I would say there is at least an implied contract between the agency and OP as an individual (no contract could be formed with anyone else) and if any terms have been proposed or a draft contract made available to OP then I would expect those terms to be implicitly agreed upon if OP has started work.

I agree with the previous advice that its probably best to just form a company ASAP, get the agency to issue a proper contract between TheirCo and Agency and invoice accordingly.

[Maslins]

It's a situation that should never happen, but does quite frequently. I'd imagine in the unlikely case of an IR35 enquiry, it would work against you though. Hard to argue you definitely see yourself as running a proper business when you were doing the same thing before the company was even set up.

I'd suggest forget the specifics of timings of this, and think more generally about whether you want to go Ltd or umbrella...but think quickly. If in doubt, go umbrella. Much less painful to change from umbrella to Ltd Co a few months in than vice versa. If you do want to go Ltd, I personally wouldn't go with NotAllThere's advice about getting an off the shelf one and changing directors/shareholders and company name, as a brand new one can be incorporated from scratch typically within a working day.