Reply to: Taking on a contract while working as a Permie

[TheCyclingProgrammer]

I don't think they would ever question an amount below the LEL to be honest. I have never seen the other income box on a tax return questioned by HMRC, although we do not have many clients that have 'other income'.

Thanks - I only ask as my wife has a small amount of income (< £1k/year) for some irregular work she does online and after discussing with my accountant we felt it wasn't worth registering as self-employed for. Prior to her needing to do a tax return we didn't bother reporting it as she had no other income and it was obviously within the personal allowance; now she does complete a tax return I just put it in the "additional" income box for her. Never thought it would be an issue.

I suppose a lot of people probably wouldn't even bother declaring the income anyway.

[Martin at NixonWilliams]

I don't think they would ever question an amount below the LEL to be honest. I have never seen the other income box on a tax return questioned by HMRC, although we do not have many clients that have 'other income'.

[TheCyclingProgrammer]

TCP is correct. The other income section of the tax return is for irregular, 'one off' type work. If you include regular income in this box it will be seen as a way of avoiding NI.

Out of curiosity, would HMRC be likely to challenge this if the amount was below the small earnings exemption threshold do you think?

I realise that strictly speaking the exemption isn't automatic and has to be applied for but pragmatically it would seem strange for HMRC to see it as avoidance if the exemption would have applied anyway.

I would have thought that if the amounts were low and below the threshold that HMRC would be unlikely to challenge it because you're at least reporting it and paying tax on it which is ultimately the most important thing right? Maybe I'm giving HMRC too much credit.

I also wonder if the planned changes to the way NIC is collected, avoiding the need for a SEE, would have any impact on this.

[Martin at NixonWilliams]

TCP is correct. The other income section of the tax return is for irregular, 'one off' type work. If you include regular income in this box it will be seen as a way of avoiding NI.

[TheCyclingProgrammer]

Why not just stick it as extra income on the SATR?

Could do but it's borderline whether or not it constitutes trading or is just "additional income" and therefore requires registering as self employed. HMRC guidance is a bit vague on what you can get away with as extra income without it being self employed.

If it was a one off I would certainly agree with just sticking it in the additional income box.

[mudskipper]

Why not just stick it as extra income on the SATR?

[TheCyclingProgrammer]

Martin makes a good point. It would earn no interest sitting in the company account but it would make for a tidy pool of funds to draw income from without any further tax to pay up to the higher rate limit should OL find themselves unemployed.

Consideration should also be made to whether or not OP has plans to contract full time at some point, in which case they would be good to go.

That said if it really is just a temporary arrangement imI would still be inclined to just go through an umbrella to save faff.

[Martin at NixonWilliams]

It would certainly be easier including the income on his self-assessment but there could be a lot of extra tax to pay.

If the OP earns enough from their permanent job and so does not need to access the money earned he could save the £20,000 or so a year in the company account and take the funds as capital with entrepreneurs relief etc.

[d000hg]

Setting up a new Ltd for 8 hours a week would seem daft to me. Getting paid personally as an additional income source and doing a SATR seems easiest?

[sal]

Isn't the most obvious solution to use an Umbrella for the ad-hoc work? Or i'm missing something?

[TheCyclingProgrammer]

As far as tax goes, if you register as self employed you'll need to pay tax at your marginal rate on any income and also Class 2 NIC, plus Class 4 on earnings over a certain amount. Double check on HMRC website.

If you were doing a single one off piece of work, I'd avoid going down the self employed route and just declare it to HMRC as a piece of one off freelance income (they may still ask for a tax return if they can't collect the tax through your tax code).

But if you plan to have some work on a regular or even semi regular basis you will need to register as self employed.

[TheCyclingProgrammer]

I left my former employer almost 2 years ago. What would I be caught doing

I mean "caught" inside IR35. The fact that you'll be doing ad hoc work, presumably without supervision means you probably won't.

All I was saying is that IR35 was brought in to stop people leaving their permanent job and then go back as a contractor doing exactly the same thing as before.

The fact you left 2 years ago means you probably have little to worry about BUT, in my opinion your chance of investigation could be a little higher. That's all.

IOW, all I'm saying is if you go down the Ltd route, make sure you understand IR35 and make sure yiur contract and working practices are reviewed properly. This advice applies to any contractor but I'd make extra certain if I was doing work for an ex employer.

[TollerMe]

The options I can think of are:

- Try and seek approval from your employer to use a company.
- Set up another company, but without you as a director (for example, your spouse as a director and you as an employee).
- Register as self-employed and include the income on your self-assessment.
- Ask them why they can't add you as an employee on a casual basis?

I hope this helps.

Martin

Current employer is a large company. Unlikely they would approve it quickly.

My old company like the idea of the ad-hoc nature as well. It may only be for a few months.

The self-assessment seems simplest. Would I likely pay a lot more tax than going down the small company route? I assumed I would pay 40% of any additional income.

Also be aware that it being a former employee increases your IR35 risk factor if working through your own LtdCo. That's not to say you would definitely be caught and on the face of it there's a reasonable chance you wouldn't if it's fairly adhoc and casual BUT impossible to say for sure with given details. But you'll need to really nail down your contract and working practices

I left my former employer almost 2 years ago. What would I be caught doing?


Thanks

[TheCyclingProgrammer]

Also be aware that it being a former employee increases your IR35 risk factor if working through your own LtdCo. That's not to say you would definitely be caught and on the face of it there's a reasonable chance you wouldn't if it's fairly adhoc and casual BUT impossible to say for sure with given details. But you'll need to really nail down your contract and working practices

[Martin at NixonWilliams]

The options I can think of are:

- Try and seek approval from your employer to use a company.
- Set up another company, but without you as a director (for example, your spouse as a director and you as an employee).
- Register as self-employed and include the income on your self-assessment.
- Ask them why they can't add you as an employee on a casual basis?

I hope this helps.

Martin