Staff to contract advice

[randalf]

I'd been a contractor running a limited company for about seven years then due to a contract cancellation and some personal reasons preventing me following the work out of the area I had to accept a staff job.

I've been doing the staff job now for a couple of years and I'm missing the contracting lifestyle so I have been making enquiries about the current state of play regarding IR35.

My understanding is that if I were to move from Staff to Contract within the same organisation then this would be considered a bad thing from the HMRC regards the risk category I would fall into.

It would drag me from a +23 to a +8, which is low risk to high risk.

While I don't necessarily agree with some of the questions, I mean why should I be penalised because I'm good at invoicing, chasing up unpaid bills and don't manage to lose over 10% of my income over a year, it is the revenues ball and you have to play the way that they say.

I'm just wondering if it is worth the risk in staying with the same company and negotiating a contract role through a limited company or if I should work through an umbrella company as long as there is a position at my existing company and then move to limited company when other clients become available?

What's your advice/experience guys?

TIA

randalf

[Sally@InTouch]

Unless you can prove that the role is substantially different to the one you currently do, and that it was open to others to apply for, then it's most likely that you would fall inside IR35 under the Friday to Monday rules, precisely what IR35 was intended to stop.

If you use an umbrella company for this potential contract, although your rate will increase, you're unlikely to be much better off as they will charge you employers NICs along with other employment costs (not all umbrellas do) , and, under the 24 month rule you will not be entitled to claim travel and subsistence expenses as tax deductible.

[TheFaQQer]

IR35 hasn't changed in the past few years, apart from some new cases being won by both sides.

The new business tests are nothing to do with IR35 - they are tests to see if you are in business on your own account. If you can prove that you are, then HMRC should leave you alone for a bit; if you can't then you still have the normal IR35 defences to fall back on.

There's no way I'd consider perm to contract in the same place doing the same job, though.

[TheFaQQer]

Unless you can prove that the role is substantially different to the one you currently do, and that it was open to others to apply for, then it's most likely that you would fall inside IR35 under the Friday to Monday rules, precisely what IR35 was intended to stop.

If you use an umbrella company for this potential contract, although your rate will increase, you're unlikely to be much better off as they will charge you employers NICs along with other employment costs (not all umbrellas do) , and, under the 24 month rule you will not be entitled to claim travel and subsistence expenses as tax deductible.

Since the OP seems to imply that they would be doing one contract through an umbrella before moving onto their own Ltd, then surely the client can no longer be classed as a temporary place of work, regardless of the 24 month rule?

[randalf]

I'm coming round to the thinking that umbrella may be the way to go in the short term, although those employer NI contributions are pretty high. The effective tax rate would be approaching 50%.

My real issue is that I have been neglecting former clients in the last two years and it will take time to rebuild that.

The current company had some bad experiences with self emplyed people doing my, admittedly, very specialist role in the past and they deliberately wanted a staff person.

From their perspective now though they had to put me into a managerial grade to offer a competitive salary, when the role is very definitely not managerial in nature which is causing an issue. Add into that the variable workloads and there is a real argument for a contractor offering more flexibility and cost efficiencies than I can offer as a staff employee.

My own experience with the company would give me a competitive advantage over any other contractor and working for six to twelve months at the same location would appear to be a win-win scenario as it allows me to cultivate old and new clients while maintaining a baseload of work.

So apart from the additional NI hit is there any real issue with working through an umbrella company at the same location as you have worked staff?

[Sally@InTouch]

Since the OP seems to imply that they would be doing one contract through an umbrella before moving onto their own Ltd, then surely the client can no longer be classed as a temporary place of work, regardless of the 24 month rule?

The temporary workplace rules rely on either not spending more than 40% of time on one site, or when the expectation of being on site for 24 months or more arises. As I interpret the rules, this is regardless of whether the employer has changed from permanent, umbrella or own limited company. So, however the Op chooses to structure themselves, the workplace would not be a temporary one.

[cojak]

So apart from the additional NI hit is there any real issue with working through an umbrella company at the same location as you have worked staff?

Not if you don't claim expenses.

See the debate above if you do.

[Bunk]

If you're planning on moving back to contracting long-term wouldn't it be better to setup a Ltd company and just accept that this contract is inside IR35. Accountant fees are usually less than umbrella fees. You get the 5% allowance for expenses. Just a thought.

[Sally@InTouch]

If you're planning on moving back to contracting long-term wouldn't it be better to setup a Ltd company and just accept that this contract is inside IR35. Accountant fees are usually less than umbrella fees. You get the 5% allowance for expenses. Just a thought.

I'll second that. You'll also have the company all set up for any other work that may come along, and, the option of company pension contributions which are deductible before calculating the deemed payment for PAYE.

[scooby]

Expand on if the role is the same you would be doing if perm?

It's get complicated, but I'm back at an old place (left for 6mths) in a different role. My saviour is that the PM role I'm doing now varies immensely from perm. As perm, I was a team manager of a bunch of PM's / programme managers and the projects I worked on were Printer rollouts and Enterprise printing, but mainly escalations etc.

The reason Im back is that I have a particular set of skills that they dont have internally. I'm now heavily focused on a large BPO deal, pre-sales then delivery. no management, and separate from the perm team. I have MOO, Sub (and likely to be able to place someone IF i needed to as the skills i have are Company knowledge and another area were i already know of resource if needed...) and D&C is heavily in my favour as this is the reason they asked me back, to sell a solution and then make it work. the client knows full well my position and is accepting that this is how it has to be. He is getting the skills he wants, and I'm building clients as we go. I'm also not tied to handcuffs etc, so the end customer of my clients are fair game, and I'm already discussing one or two things (totally unrelated to client) with the customer. Works for everyone!!

Similar job title, but working practice is very different! I spoke to Qdos, several email, proof etc, and they are happy to cover me.