• Visitors can check out the Forum FAQ by clicking this link. You have to register before you can post: click the REGISTER link above to proceed. To start viewing messages, select the forum that you want to visit from the selection below. View our Forum Privacy Policy.
  • Want to receive the latest contracting news and advice straight to your inbox? Sign up to the ContractorUK newsletter here. Every sign up will also be entered into a draw to WIN £100 Amazon vouchers!

Sole Trader under SDC and Employer NICs

Collapse
X
  •  
  • Filter
  • Time
  • Show
Clear All
new posts

    Sole Trader under SDC and Employer NICs

    Ok, this is for a friend, not me. Despite what most everyone thinks after reading that opening sentence, it really isn't me, because I think it's totally daft what he wants to do.

    So, my mate works for a relatively small company. He's been with them a long time, there's a lot of trust, he works at home most of the time.

    He wants to emigrate to a non-EU / second-world country. (I told you this was daft.) His company doesn't want to employ him there because they don't want to be subject to whatever employment laws and taxes might emerge from the minds of second-world bureaucrats. (Not everyone in this story is daft, I'm with them.) They are willing to have him continue to work for them remotely as a self-employed individual. But he's definitely under Supervision/Direction/Control. That's probably not an issue once he's there, because they don't seem to have any IR35 equivalent, and they'll hopefully just be happy to have him there and paying tax. There will be no agency involved, everything will be direct.

    But he's been told that his immigration process into this country will be difficult if he doesn't have a track record of self-employment before applying. He'll probably apply in about a year's time, so he wants to go self-employed now. Again, no agency.

    So, if I understand correctly:

    1) He'd pay Class 2 and Class 4 NIC, and income tax, as a sole trader.
    2) IR35 won't apply since there's no intermediary.
    3) But with him clearly under SDC, presumably with MOO, and no right of substitution, I assume there is a reasonable risk that HMRC would come back and say, "This is employment" and expect the company to pay employer NIC, a risk they don't want to take.
    4) And the only safe way to protect the company from that is for him to incorporate and work inside IR35.
    5) But if he forms a limited company and works for it he's not legally self-employed and has gained nothing.

    So the best solution is for him to get some common sense and not emigrate, but failing that, are points 1-4 accurate? And if so, does anyone have any bright ideas to help this guy out? His company is willing to work with him but not take on a lot of risk, and they want him to be the one to figure out how to make this work.

    He actually is doing this for a good cause, he wants to go work 2/3 time in IT, and work half-time (unpaid) in an orphanage. So I'd like to help him but don't know enough about the rules for sole traders.

    #2
    As far as I can see, he only has really two options:

    a) Incorporate, as you say, and operate IR35 (or alternatively use an umbrella which would be much less faff),
    b) Convince his current employer to restructure their relationship to one of genuine self-employment. Allow him to have significant control over what he does, how he does and where he does it. Let him work from home, set his own hours and maybe do some work for other clients too.

    Ultimately this is out of his hands because he takes no risk with option b, the risk is all on the employer/client's.

    Comment


      #3
      Agree with CP. Whether the company (his nominal employer) is aware of the situation surrounding false self-employment, and the risks to them, and to what extent they are willing to change the relationship so that it does not resemble employment are obviously the critical factors here. Either way, your mate isn't liable for employment taxes as a sole trader, so if the company is willing to take these risks, he should be fine in the UK at least. Overseas is another matter, and that will really depend on the jurisdiction.

      Comment


        #4
        maybe I'm being a bit thick, but if he's in a foreign country as a resident, why would NICs be relevant for him at all?

        The employer would in effect be buying a service from a foreign country. Whether there are tariffs to pay is a different matter as it's not an EU country.
        See You Next Tuesday

        Comment


          #5
          Originally posted by Lance View Post
          maybe I'm being a bit thick, but if he's in a foreign country as a resident, why would NICs be relevant for him at all?

          The employer would in effect be buying a service from a foreign country. Whether there are tariffs to pay is a different matter as it's not an EU country.
          WIB's friend wants to start working for them on a self-employed basis *before* emigrating to show he has a history of working as self-employed.

          Comment


            #6
            Not thick, Lance, you just read too quickly.

            Thanks, guys, pretty much what I thought. He doesn't want to chase other clients, and his job by definition requires too much SDC to change that.

            We were tossing around ideas. He wondered about forming HisCo Ltd, have it sign a contract with the client, and then subcontract the work to him as a sole trader. That doesn't really change anything except it puts the liability on HisCo rather than his current employer. If HMRC comes back and says, "This is employment," well, he (HisCo) is on the hook instead of the client. But that just seems really messy.

            He doesn't care about the tax, he's happy to structure it in a way that all the tax HMRC wants is paid, he just wants the independent employment status. Seems like there really ought to be some way he could do that.

            Comment


              #7
              Originally posted by WordIsBond View Post
              Ok, this is for a friend, not me. Despite what most everyone thinks after reading that opening sentence, it really isn't me, because I think it's totally daft what he wants to do.

              So, my mate works for a relatively small company. He's been with them a long time, there's a lot of trust, he works at home most of the time.

              He wants to emigrate to a non-EU / second-world country. (I told you this was daft.) His company doesn't want to employ him there because they don't want to be subject to whatever employment laws and taxes might emerge from the minds of second-world bureaucrats. (Not everyone in this story is daft, I'm with them.) They are willing to have him continue to work for them remotely as a self-employed individual. But he's definitely under Supervision/Direction/Control. That's probably not an issue once he's there, because they don't seem to have any IR35 equivalent, and they'll hopefully just be happy to have him there and paying tax. There will be no agency involved, everything will be direct.

              But he's been told that his immigration process into this country will be difficult if he doesn't have a track record of self-employment before applying. He'll probably apply in about a year's time, so he wants to go self-employed now. Again, no agency.

              So, if I understand correctly:

              1) He'd pay Class 2 and Class 4 NIC, and income tax, as a sole trader.
              2) IR35 won't apply since there's no intermediary.
              3) But with him clearly under SDC, presumably with MOO, and no right of substitution, I assume there is a reasonable risk that HMRC would come back and say, "This is employment" and expect the company to pay employer NIC, a risk they don't want to take.
              4) And the only safe way to protect the company from that is for him to incorporate and work inside IR35.
              5) But if he forms a limited company and works for it he's not legally self-employed and has gained nothing.

              So the best solution is for him to get some common sense and not emigrate, but failing that, are points 1-4 accurate? And if so, does anyone have any bright ideas to help this guy out? His company is willing to work with him but not take on a lot of risk, and they want him to be the one to figure out how to make this work.

              He actually is doing this for a good cause, he wants to go work 2/3 time in IT, and work half-time (unpaid) in an orphanage. So I'd like to help him but don't know enough about the rules for sole traders.
              If he's resident and working in another country then none of the UK PAYE, UK tax, HMRC and employment stuff applies. What matters are the laws where he lives and in general there are two options:

              (a) have the foreign company register as a foreign employer there (not possible in certain countries, including the UK), or
              (b) have him manage is own local taxes there.

              The second option is the most common, is generally preferred by local tax authorities (as they can easily get to him as opposed to a foreign employer in the UK) and is the least complicated. Some countries have a separate tax regime for this while in others people just register as self-employed, send an invoice and be done with it.

              He pays tax where he lives, not where the company that he works for is, so HMRC has nothing to do with it, or else he will definitely get into trouble with the local tax authorities.

              Comment


                #8
                Somebody else who didn’t read the post properly.

                Also you may pay tax where you are working but if OP’s friend remains U.K. tax resident he may be liable to tax here too.

                Comment


                  #9
                  Originally posted by TheCyclingProgrammer View Post
                  Somebody else who didn’t read the post properly.


                  Originally posted by TheCyclingProgrammer View Post
                  Also you may pay tax where you are working but if OP’s friend remains U.K. tax resident he may be liable to tax here too.
                  Thanks for mentioning that, I doubt if he thought of that. Not sure whether he'll remain tax resident here or not but I'll tell him he needs to look into it.

                  Comment


                    #10
                    Originally posted by WordIsBond View Post



                    Thanks for mentioning that, I doubt if he thought of that. Not sure whether he'll remain tax resident here or not but I'll tell him he needs to look into it.
                    If there’s a double taxation treaty in place then they shouldn’t end up paying any more than whichever country has the highest rate of tax.

                    Comment

                    Working...
                    X