New to contracting, question about client contract and tax / Ni indemnity

[jamesbrown]

Thanks for this, I am completely new to contracting and suspect I may have misunderstood what I was told or have taken poor advice. I think I understood that essentially, as a sole trader I would be responsible for any liabilities and as a Ltd. company any liabilities would be held against the company.

No, that's fair enough, it's complicated, but there are guides available. See right ----->

However, to be blunt, I don't think you are really in a contracting situation. You're in a situation where your employer wants to retain you but change your engagement terms. I would be surprised if they really wanted to engage you as a sole trader (unless they are clueless, and they may well be clueless) because they are creating a risk for themselves w/r to underpaid tax when you are deemed to be a disguised employee. Anyway, hence this indemnity clause.

The contract will be with my existing employer - I am full time with them at the moment but am leaving that role in a few weeks time - and I thought, possibly incorrectly, that I needed to worry about IR35 as it would be my only contract initially.

You don't need to worry about IR35 as a sole trader because IR35 applies to intermediaries and there is no intermediary in this case. However, you do need to worry about disguised employment and the resulting underpaid tax and the indemnity clauses. If the engagement changes, but the working practices do not, you will continue to be an employee for tax purposes.

I was planning to register as a sole trader and not set up a Ltd. company until I was sure that contracting was the right thing for me. Suspect I will need to revisit this.

It probably isn't the right thing for you. It sounds like you're being pushed into a different engagement by your employer. Contracting is a lifestyle choice, not something an ex employer pushes onto you. That isn't contracting, it's exploitation. My suggestion would be to look for a different employer or, if you really want to try contracting, then look for a contract with a real client. If you still want to go down this route with your employer, then follow cojak's advice and go via an umbrella (and Clarity lucyclarityumbrella is an excellent choice), but make sure you are totally happy with the engagement terms first because it sounds to me as though your employer is trying to exploit you.

[Paralytic]

I was planning to register as a sole trader and not set up a Ltd. company until I was sure that contracting was the right thing for me. Suspect I will need to revisit this.

If you go sole trader, have you discussed with your how you will be paid and who is working out the tax liabilities and paying those to the taxman?

I'd assume the client is expecting to pay you your day rate * number of days work, and it is therefore your responsibility to pay taxes. If you go as a sole trader, you'll have to do that via your self-assessment, make sure you pay your NI contributions etc.

As others have said, going via an Umbrella for these 3 months might be the simplest - they'll handle all the tax for you. But, your client will have to accept that too.

[eek]

The contract will be with my existing employer - I am full time with them at the moment but am leaving that role in a few weeks time - and I thought, possibly incorrectly, that I needed to worry about IR35 as it would be my only contract initially.

This to me has very large red flags - as it feels very unlikely you are leaving your employer to go back to them on a freelance basis...

[northernladuk]

The contract will be with my existing employer - I am full time with them at the moment but am leaving that role in a few weeks time - and I thought, possibly incorrectly, that I needed to worry about IR35 as it would be my only contract initially.

You really need to understand IR35 properly. Only contract has nothing to do with IR35. You could have one, you could have five. Each and every one is subject to IR35 individually. You can have one inside, one outside and so on.

And as Eek says, going from perm to contract at the same client is the worst possible IR35 situation you can be in. IR35 came about because of Friday to Monday contractors which is exactly what you are so what you are doing is exactly what IR35 came in to stop. It is highly unlikely you can be outside in your position.

[jamesbrown]

And as Eek says, going from perm to contract at the same client is the worst possible IR35 situation you can be in. IR35 came about because of Friday to Monday contractors which is exactly what you are so what you are doing is exactly what IR35 came in to stop. It is highly unlikely you can be outside in your position.

First up, it didn't, that is a myth born of a single press release to "sell it".

Second, the OP is proposing to become a sole trader, so IR35 is irrelevant. However, the underlying reason is probably that the client is looking to exploit the OP when they should really (continue to) be employed.

[northernladuk]

First up, it didn't, that is a myth born of a single press release to "sell it".

But it's still a very good yardstick to go from. It's a simple example and fits what IR35 was supposed to do.

A common example was the ‘Friday to Monday’ phenomenon. That is when an employee leaves employment with their employer on a Friday only to return to the same role in the same office on the Monday, only engaged as a contractor or consultant trading through a personal services company and paying much less tax.

https://www.contractorcalculator.co....t_is_ir35.aspx

Second, the OP is proposing to become a sole trader, so IR35 is irrelevant. However, the underlying reason is probably that the client is looking to exploit the OP when they should really (continue to) be employed.

That's true but he mentioned an initial three month period before starting contracting properly so if he need to understand this if that three month extends and he does decide to start a LTD. He's also looking for options so might have half a mind to not got sole trader and go LTD so putting out there if he is.

[jamesbrown]

It's a simple example and fits what IR35 was supposed to do.

But it's also a complete myth. The F2M scenario was always a tiny subset of the people they were after, but it's obviously a great story about "those scumbag contractors trying it on", hence the press release. If they were even remotely concerned about F2M, the legislation would've been *way* simpler, so that tells you all you need to know about the scope.

[eek]

You really need to understand IR35 properly. Only contract has nothing to do with IR35. You could have one, you could have five. Each and every one is subject to IR35 individually. You can have one inside, one outside and so on.

And as Eek says, going from perm to contract at the same client is the worst possible IR35 situation you can be in. IR35 came about because of Friday to Monday contractors which is exactly what you are so what you are doing is exactly what IR35 came in to stop. It is highly unlikely you can be outside in your position.

Nope my thought is very much that the end client is trying things on here for reasons that benefit the end client and totally and utterly do not benefit the OP.

It's not the Friday to Monday bit that concerns me, its the whole why on earth does the end client want to do that which concerns me.

[jamesbrown]

Nope my thought is very much that the end client is trying things on here for reasons that benefit the end client and totally and utterly do not benefit the OP.

It's not the Friday to Monday bit that concerns me, its the whole why on earth does the end client want to do that which concerns me.

It's exactly this. It just smells of an employer trying to exploit an employee. This is the dark side of "contracting" that impacts a ton of people, particularly at the lower end of the pay spectrum and is rife in particular industries.