Combination of employee and LTD director

[mrdiesel]

Hello, all! Hope you're having great 2012! This is my first post.

I've read a lot about differences to being employed and to run limited company and savings in taxes it can offer, but I couldn't find answer to combined situation where one is employed but also has additional income from performance commissions (with the current employer) and sometimes minor 3rd party consulting income (as self employed).

So questions is would there be benefit for myself to have LTD if: employer pays 25k/pa as wages and then 35k commissions into LTD company for aka "consulting services"?

(the ltd wouldn't have any other expenses than accountant and some minimal part time wage to director, everything else would be as gross profit).

Hope you can advise, thank you.

[Wanderer]

Welcome!

So questions is would there be benefit for myself to have LTD if: employer pays 25k/pa as wages and then 35k commissions into LTD company for aka "consulting services"?

If you left your permie job and began work as a genuine freelancer, working for a number of clients (potentially including your ex employer) on fixed price jobs then you could take advantages of the tax avoidance possibilities of having a LTD company. If you just went from permie to being a LTD company contractor for the same employer then you would be caught by IR35 and probably pay more tax that you would if you stayed on as a permie and took the earnings as PAYE or self employed.

Bottom line is that going from permie to contractor for the same employer is a real no no from an IR35 point of view.

And don't ask us what IR35 is or some lad from up north will come on here and bite you.

[Jason]

Welcome!



If you left your permie job and began work as a genuine freelancer, working for a number of clients (potentially including your ex employer) on fixed price jobs then you could take advantages of the tax avoidance possibilities of having a LTD company. If you just went from permie to being a LTD company contractor for the same employer then you would be caught by IR35 and probably pay more tax that you would if you stayed on as a permie and took the earnings as PAYE or self employed.

Bottom line is that going from permie to contractor for the same employer is a real no no from an IR35 point of view.

And don't ask us what IR35 is or some lad from up north will come on here and bite you.

Actually it all depends on how you do it, the terms of the contract and the working conditions. I left my employer many years ago before the crunch. I immediately gained consultancy work with them. I had no long term contract, I had a series of 3 to 5 day engagements with clear deliverables such as a training course or a proposal. This is I think the key when working with former employers. I did not have a 12 month contract or even a 1 month contract, I engaged to deliver specific items with them. I would have a couple of weeks with lots of deliverables, then a few weeks with nothing. My entire engagement with that company was based on deliverables. After a few months I interspaced their work with work from other companies. I worked several years that way engaging with several companies for on average 5 day engagements. Remember contracting is simply a name given to the most common way independent consultancies work in practice.

[jamesbrown]

Welcome!



If you left your permie job and began work as a genuine freelancer, working for a number of clients (potentially including your ex employer) on fixed price jobs then you could take advantages of the tax avoidance possibilities of having a LTD company. If you just went from permie to being a LTD company contractor for the same employer then you would be caught by IR35 and probably pay more tax that you would if you stayed on as a permie and took the earnings as PAYE or self employed.

Bottom line is that going from permie to contractor for the same employer is a real no no from an IR35 point of view.

And don't ask us what IR35 is or some lad from up north will come on here and bite you.

It's interesting how the advice around here differs on this aspect. I imagine your advice is being tailored to the OP, who probably isn't aware of IR35 to begin with, which is fair enough. However, whether it's a red flag for an investigation or not, as long as you have a contract, backed-up by working practices, which has a reasonably unfettered RoS, MOO, and D&C, that is what really matters. In other words, you'd want to see a clear change in the relationship when the employer becomes a client.