2 year rule- newbie question

[blackcat]

I have had a look through the past questions on the site and could not find the answers to these questions so here goes :-

I have been in my first contract for nearly 3 months through an agency and have been offered a contract renewal which is a 'fixed term salaried contract' which will be direct with the client for 2 years. Have a couple of questions:

1) If it is a 'fixed term contract' can I claim expenses, - the agency have said I can - bear in mind this is for a 2 year contract (I am currently with ParasolIT and am thinking of getting the client to pay ParasolIT directly)

2) Would it be beneficial to switch to someone like SJD and run a ltd company?

3) Alternatively would I be better off asking the company for a 1 year and 7 months renewal ?.........

Thankyou in advance for everyones help with this one and sorry if the questions seem a bit basic !!

[mcquiggd]

Firstly make sure that the contract terms are actually to your benefit... is the salary to be paid high enough to keep you there for that duration? What is your notice period? Normally that sort of contract is a way to get somebody relatively cheaply with no pension obligations etc on the employers part... via Parasol you wil be paying tax like an employee, with some expenses allowed, but not much, and that duration of tenure reduces them even more. You might as well look for a permanent job that offers training as well.

Maybe look around for another contract, stick with Parasol until you feel comfortable setting up a Limited Company.....

[BillHicksRIP]

As what the others have said, I wouldn't commit to 2 years unless the rate is out of this world, or some other obvious benefit that you're keen on is on the table. If you know you're going to be at the same site for more than two years, then you can't claim for anything at all. For me personally I went for blocks of 6-month contracts, extending twice, and when it came to breaching the 2 year limit, I told the client they'd have to match what I was losing in expenses and tax reduction or I'd be losing money to continue working for them.

[XLMonkey]

1) If it is a 'fixed term contract' can I claim expenses, - the agency have said I can.

- you can only claim travel and subsistence expenses if you expect the contract to last for less than 2 years at the same location, so as it stands, no you can't. The link here explains the rules.

http://www.hmrc.gov.uk/employers/ebi...-travel-05.htm

You can claim other legitimate expenses, but exactly what you can claim depends on the type of umbrella company you operate through (if you are operating through an offshore umbrella scheme then you will be governed by the IR schedule E guidance http://www.hmrc.gov.uk/manuals/senew/SE31755.htm).

2) Would it be beneficial to switch to someone like SJD and run a ltd company?
- if you are being offered a fixed term salaried contract, then the answer is probably not, since you would fall within IR35 and the benefits of running your own ltd company would not be very great (you might get some extra flexibility on expenses, but your daily rate would still be treated as salary).

3) Alternatively would I be better off asking the company for a 1 year and 7 months renewal ?.........
- under IR rules, once you know that you are likely to be working at the same location for 2 years, then you can't claim travel and subsistence expenses, regardless of what your contract term is. So, strictly speaking, since you have been offered a 2 year contract, you can't then reduce the term to avoid the application of the 2 year rule. Therefore, if you do this, then you are taking the chance that the IR will not poke too hard into the history of the contract. Your risk......

[n3il123]

I have to agree.. I extended in 3 - 6 month goes and then gave them the bad news that I was off if they didn't up my rate to compensate what I would be loosing... fortunatley for me (unfortunatley for client) this happended to come right in the middle of a business critical project.. so they agreed to what I wanted (and more ) without arguing.. the only regret I have is that I didn't ask for more!!!!

[boredsenseless]

I have to agree.. I extended in 3 - 6 month goes and then gave them the bad news that I was off if they didn't up my rate to compensate what I would be loosing... fortunatley for me (unfortunatley for client) this happended to come right in the middle of a business critical project.. so they agreed to what I wanted (and more ) without arguing.. the only regret I have is that I didn't ask for more!!!!

Whilst this is enough to guard you against this rule, in actual fact the letter of the law really means that if you know the client expects the engagement to last longer than two years then you are caught. Artificial 3 month contracts will hide you from the prying eyes but if your life is dug into too deeply you will be caught.

Wonder if Gordon next comes up with a deemed length of employment test?

[Bradley]

Employer

If you change employer then the clock starts again on the 24 month rule.

If you were to get the remainder of the contract transferred to your own limited company or another then the 24 month period would start again because you're then with a new employer.

[The Master]

It's actually based on roughly similar location rather than client. Changing client doesn't reset the clock unless the location is significantly different (e.g. contractors changing from city bank to another don't start a new 24 month period).

[ASB]

Changing client doesn't reset the clock unless the location is significantly different.

Quite true.

But {grey area} changing actual employer does. The implications of this is that if youe were an actual employee of say HSBC on site away from main office then the expenses are chargeable for 2 years. If you then became an employee of Barclays and happened to end up on the same temporary site the exes would then be chargeable again - for 2 years.

The implication in the case of a contractor is that (high risk strategy) closing your company every 2 years may keep you within the letter of the law - because your employer will change even if your employers client does not.

Of course the above is just a long winded way of saying what Bradley did.