IR35 without being Director?

**Nathan SJD Accountancy** · 16 July 2012, 10:53

Originally posted by Reverend View Post

Apologies for joining and immediately making a thread, appreciate some lurking and posting in ongoing threads is looked upon better, but my specific issue I'm having trouble finding (after various vague search term attempts.) A fair warning too that I am incredibly new to this so sorry if I need things telling to me like I'm a five year old - I'm trawling advice websites and forums and learning as I go!

I think I would fall outside IR35 on the grounds of I wouldn't be employed as an employee at my current work if not employed as a contractor (i.e. they were never going to get anyone but a contractor because of time/expertise constraints; being an on-roll staff member was never an option.)

But as far as I could gather, the risk caveat of the legislation seems to be that you can escape being caught because of the financial risks you undertake by directing your own company - this doesn't apply to me. I have a contractor friend who has his company, he is happy to pay me through it, which obviously means I'm not directly taking on the risk of his company (not a formal director), but on the other hand if my work doesn't pay me, I am at large financial risk personally... my contract also has all the standard caveats of "the contractor is in no way an employee of... etc etc etc." I'm honestly not sure exactly where that lands me, legally.

So, dunno - some of that may be incredibly thick and/or ignorant on my part, and I beg patience from readers who may be able to advise - do I need to be a full company director to escape IR35, or is it possible still in some other way? If I do I'll need to be checking companies' house website pretty soon...

Hi,

Are you a shareholder in his company? If not, how will you be paid?

Will you be a self employed individual, or will you have your own Limited company and the work will be 'passed on' to you?

**Clare@InTouch** · 16 July 2012, 11:01

IR35 is determined by what happens in practice, rather than whether the client deems you to be an employee or not. HMRC would look at whether you have control over what you do, whether you're obliged to do the work personally, and whether there are any implied (or real) obligations between the parties. If you're caught, then 95% of your income needs to be paid to you as salary.

If you're working through your friend's company and being paid 100% in salary, then IR35 doesn't apply as you're being paid like an employee already. As Nathan points out above, this could be different if you're a shareholder though, as you'd then be able to take dividends. Is there a reason for using his company rather than setting up your own or using a brolly?

You don't need to have your own limited company, but having one would enable you to take dividends and thus pay a lot less in tax (assuming you're outside of IR35).

**Reverend** · 16 July 2012, 11:02

At the moment I'm precisely nothing in the company - not a shareholder, haven't set up my own Plc, I've just spoken to the guy about whether if I can do it through his company, since I'll avoid the faffing of setting up my own, it might avoid me some hassle, essentially, if the end result is identical. He said that's fine and got his accountant to work out how much would be taken off for NI and tax etc so I had a picture of what my income will be - I assume just directly paid from the company to me minus tax/NI etc. I've got a couple of weeks until I need to be paid by my client for the first time to actually 'set in stone' anything that I need to. So I suppose I'm effectively self-employed at this moment? As stated; still woefully ignorant of processes involved here.

**northernladuk** · 16 July 2012, 11:15

What Clare says. We need to know how you get your money from your 'friend' before you can say if IR35 applies.

Why do so many people go through friends companies at the moment? Sounds like a recipie for disaster to me. Money and friendship don't mix. Open your own company and do it properly. If he is paying you a salary you would probably be better off going Umbrella let alone LTD.

**LisaContractorUmbrella** · 16 July 2012, 12:35

Originally posted by Reverend View Post

Apologies for joining and immediately making a thread, appreciate some lurking and posting in ongoing threads is looked upon better, but my specific issue I'm having trouble finding (after various vague search term attempts.) A fair warning too that I am incredibly new to this so sorry if I need things telling to me like I'm a five year old - I'm trawling advice websites and forums and learning as I go!

I think I would fall outside IR35 on the grounds of I wouldn't be employed as an employee at my current work if not employed as a contractor (i.e. they were never going to get anyone but a contractor because of time/expertise constraints; being an on-roll staff member was never an option.)

But as far as I could gather, the risk caveat of the legislation seems to be that you can escape being caught because of the financial risks you undertake by directing your own company - this doesn't apply to me. I have a contractor friend who has his company, he is happy to pay me through it, which obviously means I'm not directly taking on the risk of his company (not a formal director), but on the other hand if my work doesn't pay me, I am at large financial risk personally... my contract also has all the standard caveats of "the contractor is in no way an employee of... etc etc etc." I'm honestly not sure exactly where that lands me, legally.

So, dunno - some of that may be incredibly thick and/or ignorant on my part, and I beg patience from readers who may be able to advise - do I need to be a full company director to escape IR35, or is it possible still in some other way? If I do I'll need to be checking companies' house website pretty soon...

I think you have developed an over-simplistic view of IR35 - deemed employment is not the same as a company recruiting a contractor in preference to a permie - have a read of this http://www.hmrc.gov.uk/ir35/guidance.pdf

**Reverend** · 16 July 2012, 12:40

At the moment I'm precisely nothing in the company - not a shareholder, haven't set up my own Plc, I've just spoken to the guy about whether if I can do it through his company, since I'll avoid the faffing of setting up my own, it might avoid me some hassle, essentially, if the end result is the same. He said that's fine and got his accountant to work out how much would be taken off for NI and tax etc so I had a picture of what my income will be - I assume just directly paid from the company to me minus tax/NI etc. I've got a couple of weeks until I need to be paid by my client for the first time to actually 'set in stone' anything that I need to. So I suppose I'm effectively self-employed at this moment? As stated; still woefully ignorant of processes involved here.

Lisa - I imagine my view is incredibly simplified at the moment!

Edit: Thank you for that HMRC link too.

**stek** · 16 July 2012, 12:43

Originally posted by Reverend View Post

At the moment I'm precisely nothing in the company - not a shareholder, haven't set up my own Plc, I've just spoken to the guy about whether if I can do it through his company, since I'll avoid the faffing of setting up my own, it might avoid me some hassle, essentially, if the end result is the same. He said that's fine and got his accountant to work out how much would be taken off for NI and tax etc so I had a picture of what my income will be - I assume just directly paid from the company to me minus tax/NI etc. I've got a couple of weeks until I need to be paid by my client for the first time to actually 'set in stone' anything that I need to. So I suppose I'm effectively self-employed at this moment? As stated; still woefully ignorant of processes involved here.

Lisa - I imagine my view is incredibly simplified at the moment!

plc? Shirley you mean Ltd?

Is the role direct or via an agency, if the latter there's no way you can be self-employed, Agencies Act I think.....

**Clare@InTouch** · 16 July 2012, 12:52

Originally posted by Reverend View Post

At the moment I'm precisely nothing in the company - not a shareholder, haven't set up my own Plc, I've just spoken to the guy about whether if I can do it through his company, since I'll avoid the faffing of setting up my own, it might avoid me some hassle, essentially, if the end result is the same. He said that's fine and got his accountant to work out how much would be taken off for NI and tax etc so I had a picture of what my income will be - I assume just directly paid from the company to me minus tax/NI etc. I've got a couple of weeks until I need to be paid by my client for the first time to actually 'set in stone' anything that I need to. So I suppose I'm effectively self-employed at this moment? As stated; still woefully ignorant of processes involved here.

Lisa - I imagine my view is incredibly simplified at the moment!

Edit: Thank you for that HMRC link too.

If you're working through his company then your his employee. It's just like working through an umbrella really, but without the umbrella fees - that being said, I'd still recommend you go through a proper brolly. It saves the potential problems further down the line (does he have insurance to cover you for example?)

If you're contracting for 6 months or more and looking at income of £30k or more, then you need to be thinking about your own limited company if you're interested in being as tax efficient as possible.

**northernladuk** · 16 July 2012, 12:52

Originally posted by Reverend View Post

? As stated; still woefully ignorant of processes involved here.

Lisa - I imagine my view is incredibly simplified at the moment!.

Simplified isn't the word you should be using here....

I presume your friend has given you a contract of employment? He also knows the legalities and responsibilities of employing you? You have agreed an expenses policy as well handling VAT and all that marlarky?

IR35 without being Director?