Advice on consulting and Limited Company

**northernladuk** · 28 July 2021, 19:52

Originally posted by Dilecta View Post

Anyhow, the company owner wants me to consult and can offer me up to 20 hrs per week. Potentially for 3 months. Various projects need to be carried out, maybe 1 day on site if I can.

Very difficult to believe that's going to be outside. Going back to a client is a massive flag and the various projects bit sounds like D&C if I ever saw it

I've downloaded a contract based on IR35 from lawbite (I think) and gone through the HMRC checker which says they will stand by the result as long as the answers are honest.

Irrelevant now. You don't know the situation of the engagement so you are just compating a piece of paper but that is irrelvant now. Your client should now determine your IR35 status so it's out of your hands. They need to use the CEST tool to determine your engagement and give you a Status Determination Statement saying if you are inside or outside.

I'd be very worried if they said it was outside though

I have the opportunity to consult for a similar company closer to home (100 miles away) and also the option of a 3rd if things go well, again maybe 3-6 months.

You mean in parallel or after you've done this piece of work? To be fair we tend to say you don't have anything until you are sitting at the clients desk but only you will know if these opportunities will actually come to anything.

I have a side business as a sole trader (cosmetic development) which I dabble but doesn't do much. I have the Limited version dormant.

Properly dormant or just not using it?

I have been quoted £750 + £25 per quarter to set up and maintain PAYE, file all the relevant paperwork.

You are better going through an umbrella. Speak to Clarity Umbrella to find out how it all works.

I'm just wondering is it worth the Limited company status for 3 months?

At present you don't have an SDS so don't know if this is inside or outside. If you are inside then you can't really use a LTD anyway and would have to go brolly. You need a contract and SDS from your client before you can decide.

Can I work as sole trader with same consulting contract? And if things look good after 3 months go to Limited?

Agencies won't work with sole traders and many clients direct won't either. That said we've had plenty of posts where clients have allowed it. You need to find out from your client what the score is so you can decide. And again, if you are inside then a LTD is out of the question.

I'd probably say expect to go via an umbrella first but you need to bottom things with your client. What is their determination of the role and will they accept sole trader. That will probably make the decision for you.

And for what it's worth, in my opinion, don't start contracting by going back to your employer. Jump in with both feet and go find a proper contract with a new client. Going back to the old one sounds nice and easy but (in the old days) was an IR35 minefield.

**Dilecta** · 28 July 2021, 20:24

Thanks for the quick reply,

I think it comes down to my former employee needing technical expertise and without much knowledge of consulting/contracting have asked me if I can carry out initially a project involving improving production processes, identifying issues and suggesting/implementing them. They don't have a member of staff that can do this. I can do 90% of that work from home.

I have a properly dormant limited company which I could use to do this work and the other opportunity will run parallel (all being well) potentially a 3rd.

I went through the CEST too my self and followed what I put in my contract to them (maybe they do the contract not met?) Or both of us?! As I can send or use a substitute that's good. I

I understand it doesn't look great. Maybe I could leave it a month and then approach then if I can get one contract in the meantime?

The CEST tool says I'm outside, the account went though it with me on the phone, if I say I can't send a substitute I fail and if I can I pass.

This is in my contract and I discussed with the MD who said this would be ok.

I do tend to panic about these things! What's the worst that could happen if I'm wrong for 3 months?

Is it just better to use an umbrella full stop?

Sorry if I'm talking nonsense!!

**northernladuk** · 28 July 2021, 22:28

Originally posted by Dilecta View Post

Thanks for the quick reply,

I think it comes down to my former employee needing technical expertise and without much knowledge of consulting/contracting have asked me if I can carry out initially a project involving improving production processes, identifying issues and suggesting/implementing them. They don't have a member of staff that can do this. I can do 90% of that work from home.

IR35 is how you are treated and how the client view you. Are you a disguised employee or are you a true contractor. Are you doing the same work, just now under a more favourable tax system, which you can imagine, HMRC doesn't like. The problem with going back to an employer is you think you are a consultant but really you are just filling the void you left, which was as an employee, so there is little to no chance of being outside if you are just back doing what you did as an employee. Get me?

They did have a member of staff that did it. You. Now you are gone they should be replacing you with another member of staff. Getting you back in to do what you would have done as an employee kind makes you look like a disguised employee.

IR35 was created to counter exactly this. They call it a Friday to Monday contractor. You leave employement Friday, come back contractor Monday then their eyes you should be taxed as an employee. Going back to a client is normally a slam dunk case. Not always but start off at that and try convince me/HMRC otherwise.

The working from home for example. An employee can do that. It doesn't differentiate you from an employee so no help.

Will you get asked to the employee only works xmas do? I suspect yes because you had a previous relationship therefore you are being treated like an employee is another example and so on. All minor flags though.

I have a properly dormant limited company which I could use to do this work and the other opportunity will run parallel (all being well) potentially a 3rd.

Depends on your SIC code etc. Probably easier setting a new one up if you need it. Can be done in a few hours but park that one for now. I'm still not convinced you'll need it.

I went through the CEST too my self and followed what I put in my contract to them (maybe they do the contract not met?) Or both of us?! As I can send or use a substitute that's good.

Do you know contracts well enough to do this? I do get nervous when people go through their own CESTS. To get it right you need to know everything. For example. Is your Right of Sub fettered? If you aren't sure you can't answer it properly.
It's also just guesswork as you don't know what the client wants. We've had sub clauses in IR friendly contracts for decades and it's been called a sham by more than one judge. We also know a vasy majority of clients won't accept it when it when push comes to shove.
Also with subs people don't often understand what is involved. You have to train them up in your time for free. You have to send in a substitute, not another body that doesn't have a clue.

Another big flag is direction and control. You can't have that but being an ex employee it's going to be very tough for the client not to come up to you and say they are bit short handed here can you do this etc, like they did when you were an employee. Needs a shift in their thinking which is hard.

Also you don't do the CEST now, the client does (which I think is the right way for reasons I mentioned above). They have to do it and give you a Status Determination. If they get it wrong and HMRC finds you acting like an employee then your client is liable. The risk is now on them to do it right.

I understand it doesn't look great. Maybe I could leave it a month and then approach then if I can get one contract in the meantime?

Time doesn't really make a difference. We've no solid evidence of this but if you take a token break and come back as normal then... if it looks like a duck, quacks like a duck it's still a duck however long you were away. You are still doing the role a permie should/has done.

The CEST tool says I'm outside, the account went though it with me on the phone, if I say I can't send a substitute I fail and if I can I pass.

That intself is not strictly true and there are caveats about the sub i.e. fettered/unfettered. It really isn't that simple.

This is in my contract and I discussed with the MD who said this would be ok.

They all do until it happens and then they don't. You could of course get a confirmation of arragangements to prove he said it. But... if they follow the process properly, define what they want from a supplier and give you the SDS you are golden. What you are in danger of them is being all friendly and accomodating with you because you are an employee but it isn't something the would generally offer a supplier.

I do tend to panic about these things! What's the worst that could happen if I'm wrong for 3 months?

And that's a great point. Not a lot to be fair. You've got to get caught first, then you've got to prove them wrong and at worst you pay the tax back you should have paid with maybe some penalties and the like, but for three months then its minimal and low chance of getting caught.

Is it just better to use an umbrella full stop?

You need to get an accountant in but we used to have a figure (before expenses got canned) that anything under 30k was umbrella land. That changed with VAT changes, changes to umbrella expenses etc so not sure what the figure is now. Just have to look at the amount you intend to bill for that period really.

Don't forget you could go through a brolly and slap the entire lot in a pension and don't pay a penny in tax on it so Umbrella's can have some upsides.

Sorry if I'm talking nonsense!!

Nope. All good points, you've had a good stab at it and are trying, which is much better than most. We've got one idiot on here right now who's a seasoned contractor and openly said in this opening post asking us to wipe his arse for him that he can't be bothered with IR35.

I've given you a really black and white detailed but negative view, it's what I do when I'm bored. I'm sure someone else will come along and tell you to do what you've done, get the contract signed and fill your boots for 3 months. As you say, whats the worst that can happen. Not a lot.
Problem comes when they ask you to stay a bit long, and a bit longer until your liabilities become eye watering and your IR35 status has been eroded to the point anyone with a hole in their bum can see whats happening, and it's not what you started out to do if that makes sense.

Take my comments as the worst case, if you have considered it and worked around it then off you go. Don't let it scare you or put you off. For twenty hours a week for three months I'm sure a majority of people will tell you to tip a hat to IR35 and then get on with it.

Just remember its the client that must give the determination and that they are fully responsible if it's wrong. You can feed them what you want but they are liable. Just make sure everyone is aware of that. If the client says yep outside then happy days, their problem not yours.

**northernladuk** · 28 July 2021, 22:42

One question though, part time work is incredibly hard to find. You need personal connections to get it, it's not out on the boards or anything. Why not just leave and go find yourself a full time contract position paying full whack for full time? I know you might feel some bond to your old employer and don't want to let them down but I am afraid you can't think like that. You work for yourself now. No work, no income. You can't be cutting off half your income to please your ex boss. Believe me, if that work comes to an end abruptly you'll be out of the door that day with no further income. Notice periods meant something when you are an employee, they don't when you are a contractor.

Don't be doing favours with your livelihood and income now.

**northernladuk** · 28 July 2021, 22:51

Sounds like I'm doubling back on myself but.. All the above is how not to do it. If you have the opportunity you could really help make it outside, particularly if you've got the MD's ear. Make it a statement of work based deliverable. They give you a piece of work, you do it whenever you want how you want and just deliver it back. Employees can't do that. Trick would be stop thinking like an employee and more like a faceless supplier. A client gives a supplier a piece of work, they have no idea how or when they do it. It just appears completed. Once completed they get paid. If you could define it like that it will certainly look completely different than doing 9 to 5 and get paid regularly (like employees do).

**Lance** · 29 July 2021, 08:12

I agree with NLUK.

But would add that if the opportunity is there, that the OP should do the work for the former employer as a sole trader. Makes more sense than an umbrella, and the only reason that a sole trader isn't normally used is due to agencies. If the former employer will take the OP on as a sole trader then that would work for all and IR35 becomes totally irrelevant.

Only setup a LTD if more contract work comes along that is definitely outside IR35. Which may or may not happen.

**Dilecta** · 29 July 2021, 11:03

Hi Guys,

Thanks for taking the time to reply in detail to my questions.

Its looking like I can get another contract (near to home) and also I need to speak to another company who I have been working with as a sole trader for free.

If I can get 3 clients on the books that will look good?

I have put together a contract, COA and an SDS from my point of view with clear wording in the email as to what is expected in a business to business relationship. I will use my own computer, buy/rent any equipment I need etc

I feel like I have done as much as I can to stay outside. I looked at IR35 shield, not sure if thats any good?

I know it may look like a Friday Monday thing but I've paid taxes all my life and wouldn't have the nerve to try and cheat now!, I'm a worrier so I've done all I can to not worry about it, although I am!

I like the idea of having my own limited company and where I could take me.

is IR35 insurance a good idea? Or can it be included in other insurance?

Thanks in advance :-)

**northernladuk** · 29 July 2021, 11:37

Originally posted by Dilecta View Post

If I can get 3 clients on the books that will look good?

Look good to who? As a portfolio to potential clients then I guess so but for IR35 purposes it's irrelevant. Every contract is looked at on it's own merits. You could have one inside, one outside. The fact you've multiple running doesn't affect the status of each contract.

I have put together a contract, COA and an SDS from my point of view with clear wording in the email as to what is expected in a business to business relationship. I will use my own computer, buy/rent any equipment I need etc

As mentioned your key document is your statment of work. The contract covers aspects of the engagement but not what you are actually doing. The SoW is key to showing what you are doing and only that. Employees just do work day to day so you doing a specified piece of work with deliverables is a different way of working which an employee doesn't do.

You can add a new statement of work if they want something else under the overarching contract. Only thing I'd say is too many SOW's or changes to existing can make it just look like a papertrail of someone whos just doing what they are told if that makes sense.

I feel like I have done as much as I can to stay outside. I looked at IR35 shield, not sure if thats any good?

I wouldn't bother. It's the clients problem not yours. They are on the hook if the determination is wrong and it should be them doing on this. They issue the SDS so you'll need to feed them this and get them to give it to you to show proper process if that makes sense.

I know it may look like a Friday Monday thing but I've paid taxes all my life and wouldn't have the nerve to try and cheat now!, I'm a worrier so I've done all I can to not worry about it, although I am!

Fair enough

I like the idea of having my own limited company and where I could take me.

The LTD is just a vehicle of payment. The LTD doesn't take you anywhere, you do. Go those places, look at what is required and make a decision on what to do. The LTD doesn't drive the business, it's just the method you deliver it and get paid. Since the changes in IR35 this year a vast majority of gigs have gone inside now so it's unlikely you'll be able to work through a LTD continuosly now.

All that said if you manage to build a microconsultancy then that's different but going back to a client isn't building an effective micro consultancy, it's an easy out so still work to do. Make sure you have a business plan going forward if that's the way you are going to go.

is IR35 insurance a good idea? Or can it be included in other insurance?

It's the clients risk now not yours. If you get caught acting like an employee the client gets shafted for the money. The client really must understand this now. They might not know about contracting but they need to know they are fully responsible now.

You will most definintely need Prof Idemnity and Liability. If you screw up now it's on your head. You don't get a warning for cocking up, you'll get walked and possibly sued.

**Dilecta** · 30 July 2021, 11:37

Thanks for taking the time to reply northenladuk, and listen to my worries, very much appreciated.

I think I'm going to go for it, un-dormant my company, add new SIC code and get moving. I have considered all the info supplied and will make sure i have done as much as possible to do the right thing regarding Contracts, COA, SOW, CEST etc. The MD is onboard and understands what I will be doing and that he doesn't have control over how I do things etc. Initially they didn't understand and thought I could just come in as an employee! Anyhow, it's all clear now so over the next 3 months I will try to build up other contracts away from my old employee and move forward!

Thanks again buddy!

Advice on consulting and Limited Company