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Permanent Job and Outside IR35 Contract (Part Time)

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    Permanent Job and Outside IR35 Contract (Part Time)

    I'm in a permanent job at the moment and I've an opportunity to take a part time gig which sits outside of IR35.
    • Is this allowed? This is the first time I will be doing outside IR35 contract.
    I think I will need to open a limited company to invoice the client. But how does it work in terms of tax? I'm a higher rate tax payer with the permanent job.
    • When I take salary out of my company (let’s say £10k a year), I think it will be added to my permanent salary and I pay extra tax (for £10k) when I fill my (personal) tax return to HMRC?
    Is my assumption correct?
    • Will it be a problem when I declare this outside IR35 role as second job while returning my personal tax to HMRC?
    • Can I be a director and employee of my limited company?
    • Can I add my wife as employee of the limited company and take salary out?
    I’ve heard that the rules were changed around outside IR35 few years ago; therefore I just want to make sure that I’m doing everything correct. Yes, I will reach out to an accountant as a next step, but for now I would like to get some initial thoughts.
    • Is there anything else I should consider?
    Before you ask re time management; yes - this is something I can do while working in permanent job.

    Sorry if these are very basic questions but thanks in advance for any directions I could get here J


    #2
    I wish you hadn't asked this. Ensignia is gonna have to come and moan at me again.

    EDIT : Actually it could different to normal.

    Before you ask re time management; yes - this is something I can do while working in permanent job.
    Sorry to labour this one but everyone thinks they can do this but you also ask is it allowed. So when you say you can do it while doing perm job do you mean you can slot it in to your day and your employer won't notice, or do you mean it can be done out of hours in evenings or weekends? The former is a no no as you will be working on your clients time which you are contractually tied to your client for. It will be in your employment contract. It could possible be in your outside gig contract as well.
    Quick rule of thumb is if you can't tell both parties what you are doing then you shouldn't be doing it.

    So is it allowed? Only you can tell us that by looking at the working arragenements and contracts and working out if it's allowed or not.

    Quite a few things wrong with the rest of the post so very long winded to go through. For example, you don't need to pay yourself at all from the LTD, you won't be an employee of the LTD and adding your wife could be possible but there are limits. You really need to speak to your accountant first as there is a load of stuff there you probably don't know and haven't asked us yet. I'd suggest you go to a smaller set up where you can actually talk to the boss. With the prospect of you coming on as a new customer they may give you some advice first. I'd suggest someone like Maslins, PaperRocket or BI Accounting first.
    Last edited by northernladuk; 30 March 2022, 21:11.
    'CUK forum personality of 2011 - Winner - Yes really!!!!

    Comment


      #3
      You don't have to use a limited company for an outside IR35 contract. You could go through an umbrella, the same way that you would for an inside IR35 contract. Which option is best will depend on your circumstances. Bear in mind that there is some overhead to running a company, e.g. paying for accountancy fees and liability insurance. If it's a part time contract that only lasts for a few months, you might be better off with the umbrella option. In particular, since you're already a higher rate tax payer, you might want to take minimum wage through the umbrella and then dump everything else into your pension via salary sacrifice.

      Comment


        #4
        Originally posted by northernladuk View Post
        I wish you hadn't asked this. Ensignia is gonna have to come and moan at me again.

        EDIT : Actually it could different to normal.

        Sorry to labour this one but everyone thinks they can do this but you also ask is it allowed. So when you say you can do it while doing perm job do you mean you can slot it in to your day and your employer won't notice, or do you mean it can be done out of hours in evenings or weekends? The former is a no no as you will be working on your clients time which you are contractually tied to your client for. It will be in your employment contract. It could possible be in your outside gig contract as well.
        Quick rule of thumb is if you can't tell both parties what you are doing then you shouldn't be doing it.

        So is it allowed? Only you can tell us that by looking at the working arragenements and contracts and working out if it's allowed or not.
        The part time contract is only 16 hrs a week and they don't care if I do it in evenings or weekends. Just to add; I did similar one-off contract in 2021, but it was inside IR35. I did it through umbrella company and it was all good.

        But this one is outside IR35 which I've never tried before.

        Originally posted by northernladuk View Post

        you don't need to pay yourself at all from the LTD, you won't be an employee of the LTD
        Am I right in thinking that as a director I could pay myself salary?

        Originally posted by northernladuk View Post
        Quite a few things wrong with the rest of the post so very long winded to go through.
        It would be really helpful if you could throw some lights on others which are possibly wrong. I've been avoiding outside IR35 part time roles for a while now, but it keeps coming and I would like to explore it rather than shying away from it.

        Comment


          #5
          Originally posted by hobnob View Post
          You don't have to use a limited company for an outside IR35 contract. You could go through an umbrella, the same way that you would for an inside IR35 contract. Which option is best will depend on your circumstances. Bear in mind that there is some overhead to running a company, e.g. paying for accountancy fees and liability insurance.
          Ah - I didn't know that I could do outside IR35 under umbrella company. But - it then becomes as Inside IR35 with employer NI etc, isn't it?
          Last edited by Pete30; 30 March 2022, 22:57.

          Comment


            #6
            Originally posted by Pete30 View Post
            Ah - I didn't know that I could do outside IR35 under umbrella company. But - it then becomes as Inside IR35 with employer NI etc, isn't it?
            Yes, that's right - essentially, IR35 status becomes irrelevant at that point, because you're a PAYE employee of the umbrella company.

            Going back to your original post:

            Originally posted by Pete30 View Post
            • When I take salary out of my company (let’s say £10k a year), I think it will be added to my permanent salary and I pay extra tax (for £10k) when I fill my (personal) tax return to HMRC?
            Is my assumption correct?
            Correct. All your salary is added together, then grouped into brackets (personal allowance, basic rate, higher rate, additional rate) In a similar way, if you take dividends then the first £2k will be tax free, but after that it will continue in the same tax range as your salary.

            E.g. suppose that your current salary (from permie role) is £70k, then you take an extra £10k of salary and £10k of dividends from your new contract. You'd be paying 40% tax on the £10k of contract salary and 33.75% on £8k of the contract dividends (as well as the 19% corporation tax on your limited company's profits). You'll need to plug in the actual figures to work out your "take home" money, i.e. how much you will personally get after taxes, then decide whether it's worthwhile.

            • Will it be a problem when I declare this outside IR35 role as second job while returning my personal tax to HMRC?
            No problem at all, you just list your total income in each category. You will need a tax code for your company's payroll, but you can talk to your accountant about that.

            • Can I be a director and employee of my limited company?
            You can, but it's unusual. Just to clarify that, you can be on the payroll of the limited company without being an employee, i.e. most directors don't have employment contracts. Among other things, that means that you can pay yourself less than minimum wage. The trade-off is that your company could give you the boot without a notice period, but as the director that's not much of a risk!

            • Can I add my wife as employee of the limited company and take salary out?
            Yes, although the question is what she's actually going to do. I.e. are you going to pay her a fair salary for the tasks that she actually does or just use her as a tax mule?

            You can find some previous discussions about this if you do a Google search:
            wife employee site:forums.contractoruk.com

            Basically, if you pay her £100/month, HMRC won't bother investigating. If you pay her £1000/day when her duties are "make me a cup of tea now and then", you might get into trouble.
            Last edited by hobnob; 30 March 2022, 23:21.

            Comment


              #7
              This is very very helpful, but Jeeez, I've now started thinking that I would be way better off with inside IR35.

              Hope you don't mind if I ask couple of quick questions.

              Originally posted by hobnob View Post

              In a similar way, if you take dividends then the first £2k will be tax free, but after that it will continue in the same tax range as your salary.

              E.g. suppose that your current salary (from permie role) is £70k, then you take an extra £10k of salary and £10k of dividends from your new contract. You'd be paying 40% tax on the £10k of contract salary and 33.75% on £8k of the contract dividends (as well as the 19% corporation tax on your limited company's profits). You'll need to plug in the actual figures to work out your "take home" money, i.e. how much you will personally get after taxes, then decide whether it's worthwhile.
              The question is on dividend I take out from the company. I presume the dividend tax goes out from the company account and whatever lands on my personal account, wouldn't be considered as my personal income?

              Originally posted by hobnob View Post
              Basically, if you pay her £100/month, HMRC won't bother investigating. If you pay her £1000/day when her duties are "make me a cup of tea now and then", you might get into trouble.
              I think you meant £1000/month?
              As she is not working at the moment, I thought to pay her salary within personal allowance (which is about £1000pcm). If this will attract HMRC, then we shouldn't think about it.

              This is so painful. With all these taxes and accountant fee / liability insurance etc, I would just choose Inside IR35 gig as I did last year.

              Comment


                #8
                Originally posted by Pete30 View Post
                Am I right in thinking that as a director I could pay myself salary?
                Of course but you don't have to if just using dividends is more tax efficient.

                As she is not working at the moment, I thought to pay her salary within personal allowance (which is about £1000pcm). If this will attract HMRC, then we shouldn't think about it.
                For doing what? Would you pay a random stranger that much for doing whatever your wife will do? No, so HMRC aren't going to see it as a reasonable wage either so more likey to think it must be a tax wheeze.

                Ah - I didn't know that I could do outside IR35 under umbrella company. But - it then becomes as Inside IR35 with employer NI etc, isn't it?
                You need to separate the two. There is inside and outside which is the tax status of that role. Then there are payment vehicles which are Umbrella, Agency PAYE or LTD. You can be any of the first via any of the second. You can run an outside gig via a brolly yes, you just get taxed like an employee rather than the benefits of a LTD. You can run an inside gig through a LTD as well (although it's very uncommon for various reasons) as long as the LTD deducts the right taxes but you don't get any advantages of that method. They are tailored to suit the different tax statuses so one has more pro's than the other but in theory they could all do the same thing. The detail is much more complicated but you get what I am saying?
                'CUK forum personality of 2011 - Winner - Yes really!!!!

                Comment


                  #9
                  Originally posted by northernladuk View Post
                  For doing what? Would you pay a random stranger that much for doing whatever your wife will do? No, so HMRC aren't going to see it as a reasonable wage either so more likey to think it must be a tax wheeze.
                  Yes - totally got it. Thanks much.

                  Originally posted by northernladuk View Post
                  You need to separate the two. There is inside and outside which is the tax status of that role. Then there are payment vehicles which are Umbrella, Agency PAYE or LTD. You can be any of the first via any of the second. You can run an outside gig via a brolly yes, you just get taxed like an employee rather than the benefits of a LTD. You can run an inside gig through a LTD as well (although it's very uncommon for various reasons) as long as the LTD deducts the right taxes but you don't get any advantages of that method. They are tailored to suit the different tax statuses so one has more pro's than the other but in theory they could all do the same thing. The detail is much more complicated but you get what I am saying?
                  Yes, I got it. Outside IR35 is full of booby trap.

                  I'll stay with inside IR35. It's more clear and problem free option.

                  Thanks much for the inputs!!!!

                  Comment


                    #10
                    Originally posted by Pete30 View Post
                    Yes, I got it. Outside IR35 is full of booby trap.

                    I'll stay with inside IR35. It's more clear and problem free option.

                    Thanks much for the inputs!!!!
                    But again, the contract is outside it will be whatever payment vehicle you use. What I think you meant to say is you'll stay with brolly. The tax situation of the contract hasn't changed.

                    While you are working via a brolly it's still worth learning about IR35 and taking some advice from an accountant. If this is long term it might still be worth switching back to LTD at some point. Depends on how desperate you are to save every penny vs having two incomes and just being happy with it. At least while you are via the brolly you've got the time to investigate at your leisure. It is totally possible to switch from Umbrella to LTD mid contract (because the vehicle is different to the contract remember )
                    'CUK forum personality of 2011 - Winner - Yes really!!!!

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