Reply to: Full time contracting for US company - where do I stand?

[WordIsBond]

If the company is willing to work with you it should be fairly easy to structure the contract in a way that puts you outside IR35. Then you could do as suggested above and go Ltd.

There have been some recent somewhat-related threads that may or may not apply:
http://forums.contractoruk.com/accou...d-company.html
http://forums.contractoruk.com/accou...count-vat.html

[jamesbrown]

Fantastic, thanks - you've been a great help and it's much, much clearer in my head now.

Regards,

Stephen

No problem. Feel free to check in again when you know more. Also, bear in mind that, while the working relationship is important, there are other important things too. For example, U.S. companies are notoriously litigious, so make sure you understand your personal exposure (if any) and insure against it.

[briangriffin]

To be clear, I'm not saying whether you will or will not be self-employed, I am simply saying that, if you're employed, you will need a DPNI scheme. If you're self-employed, you have a bunch of options. I have no idea what the intentions of you or your employer/client may be. Do they want to employ you? Do you want a contract of employment? In the first instance, the contract will describe the relationship. It will either represent a contract of service (employment) or a contract for services. Once that's established, your options will become clearer. If they want a pseudo-employee (looks like an employee, smells like an employee, contract says not an employee), then this will have other (e.g. tax) implications, but the contract is the starting point.

Fantastic, thanks - you've been a great help and it's much, much clearer in my head now.

Regards,

Stephen

[jamesbrown]

Hi!

What is the differentiating factor between being employed & self-employed?

Whilst I will be supplying a service equivalent to 40 hours software consultancy each week, its on a contract basis for which I invoice each month. so am I not self-employed?

Apologies if I've confused matters along the way...and thanks again for your help with this.

Stephen

To be clear, I'm not saying whether you will or will not be self-employed, I am simply saying that, if you're employed, you will need a DPNI scheme. If you're self-employed, you have a bunch of options. I have no idea what the intentions of you or your employer/client may be. Do they want to employ you? Do you want a contract of employment? In the first instance, the contract will describe the relationship. It will either represent a contract of service (employment) or a contract for services. Once that's established, your options will become clearer. If they want a pseudo-employee (looks like an employee, smells like an employee, contract says not an employee), then this will have other (e.g. tax) implications, but the contract is the starting point.

[briangriffin]

Hi!

What is the differentiating factor between being employed & self-employed?

Whilst I will be supplying a service equivalent to 40 hours software consultancy each week, its on a contract basis for which I invoice each month. so am I not self-employed?

Apologies if I've confused matters along the way...and thanks again for your help with this.

Stephen

[jamesbrown]

I'm a UK citizen / tax payer btw.

Having spent a few days mulling this over, my current thinking is: Not to use a Ltd Co. but simply be an individual personal entity and go down the DPNI route. However as my sole means of employment will come from the one source (the US company with no UK/ European presence), will IR35 come into this at all? I've done some reading and don't imagine it could, but...

Assuming I go down this route of 'self employed not through a Ltd. Co.' I presume I can still claim reasonable expenses against tax? I work from home much of the time and as such rely on a proportion of the house itself, its electricity, broadband, phone etc.

Thanks again,

Stephen

You will be an employee of the U.S. company, you won't be self-employed. Certainly, IR35 won't apply. If you want to be self-employed (a sole trader), you can do that too, but that's also a different set-up (and IR35 would not apply). Again, a DPNI scheme is for employees of foreign companies that do not have a U.K. tax presence, not for the self-employed or for U.K. companies. If you call HMRC, they will quite likely not be aware of the PAYE direct schemes () and suggest that you operate as a sole trader, but a DPNI scheme is nevertheless available to you.

[briangriffin]

If you are not operating through a Ltd then IR35 cannot possibly apply.

Many thanks - that's cleared up my concern / added to my understanding!

[SuperLooper]

Not to use a Ltd Co. but simply be an individual personal entity and go down the DPNI route. However as my sole means of employment will come from the one source (the US company with no UK/ European presence), will IR35 come into this at all?

If you are not operating through a Ltd then IR35 cannot possibly apply.

[briangriffin]

If you're a contractor and you choose to operate through a U.K. Ltd then, yes, your company will need to operate PAYE/NI on any salary payments. However, the first, and most important, thing you need to understand, if you choose to operate through a U.K. Ltd., is that you are your Ltd. are not the same things, legally. A PAYE direct (DPNI) scheme is intended to allow employees of foreign companies, without a U.K. tax presence, to operate PAYE/NI themselves in the absence of a UK employer. If you're operating through a U.K. limited, then the responsibility lies with YourCo to operate PAYE/NI correctly for anyone that receives a salary (and, eventually, you as a director if you screw-up). This will not be a DPNI scheme and YourCo will also need to operate Employer's NI appropriately, depending on status.

For practical purposes, if you're operating through a UK Ltd., your U.K. Ltd will be your "employer" (regardless of whether you have a formal contract of employment with YourCo). If you go down this route, you should seek an accountant. If you're a U.S. citizen or are otherwise tax resident in the U.S., you should seek a tax professional with cross-border experience.

I'm a UK citizen / tax payer btw.

Having spent a few days mulling this over, my current thinking is: Not to use a Ltd Co. but simply be an individual personal entity and go down the DPNI route. However as my sole means of employment will come from the one source (the US company with no UK/ European presence), will IR35 come into this at all? I've done some reading and don't imagine it could, but...

Assuming I go down this route of 'self employed not through a Ltd. Co.' I presume I can still claim reasonable expenses against tax? I work from home much of the time and as such rely on a proportion of the house itself, its electricity, broadband, phone etc.

Thanks again,

Stephen

[jamesbrown]

Thanks James & apologies if this reply comes through twice, the first time it didn't seem to appear.

Assuming I'm a "contractor" rather than a formal employee of the US company, sounds like I should setup "a PAYE direct scheme with HMRC" to handle my NI. But would I handle tax separately at the end of the year by way of a return / an accountant?

Thanks again,

Stephen

If you're a contractor and you choose to operate through a U.K. Ltd then, yes, your company will need to operate PAYE/NI on any salary payments. However, the first, and most important, thing you need to understand, if you choose to operate through a U.K. Ltd., is that you are your Ltd. are not the same things, legally. A PAYE direct (DPNI) scheme is intended to allow employees of foreign companies, without a U.K. tax presence, to operate PAYE/NI themselves in the absence of a UK employer. If you're operating through a U.K. limited, then the responsibility lies with YourCo to operate PAYE/NI correctly for anyone that receives a salary (and, eventually, you as a director if you screw-up). This will not be a DPNI scheme and YourCo will also need to operate Employer's NI appropriately, depending on status.

For practical purposes, if you're operating through a UK Ltd., your U.K. Ltd will be your "employer" (regardless of whether you have a formal contract of employment with YourCo). If you go down this route, you should seek an accountant. If you're a U.S. citizen or are otherwise tax resident in the U.S., you should seek a tax professional with cross-border experience.

[eek]

Thanks James & apologies if this reply comes through twice, the first time it didn't seem to appear.

Assuming I'm a "contractor" rather than a formal employee of the US company, sounds like I should setup "a PAYE direct scheme with HMRC" to handle my NI. But would I handle tax separately at the end of the year by way of a return / an accountant?

Thanks again,

Stephen

If you are an employee you can set yourself up as their employee but there will be paperwork from HMRC that in all likelihood you would have to deal with.

I suspect the easier solution all round is for you to be a contractor, create a limited company for your own use and for that limited company to bill them directly

[northernladyuk]

And watch the credit terms to minimise exposure to bad debt. Probably a real hassle to enforce.

[briangriffin]

Whether or not you're "employed" depends on the terms of your contract. If you're employed, you'll need to set-up a PAYE direct scheme with HMRC for PAYE and Employee's NI (DPNI) because your employer has no UK tax presence. No Employer's NI is due. Otherwise, you can choose to operate through a U.K. umbrella, assuming the contract is within U.K. jurisdiction and governing law (unlikely a large US company would agree to that) or you can form a Ltd.

If you form a Ltd, the tax situation is not substantially different than a contract for a U.K. client, although the supply will be outside of the scope of VAT (most likely). Whether the contract is inside IR35 will depend on the working relationship (get your contract and proposed working practices reviewed), but you seem to view it as one of employment. YourCo and you will pay tax in the U.K. Note that you cannot do any productive work in the U.S. unless you're a U.S. citizen or have an appropriate employment visa. If you're a U.S. citizen, your personal tax situation is much more complicated too. Beyond that, you'll need an accountant and PI insurance for U.S. jurisdiction and governing law (if applicable), which is much more expensive.

Thanks James & apologies if this reply comes through twice, the first time it didn't seem to appear.

Assuming I'm a "contractor" rather than a formal employee of the US company, sounds like I should setup "a PAYE direct scheme with HMRC" to handle my NI. But would I handle tax separately at the end of the year by way of a return / an accountant?

Thanks again,

Stephen

[briangriffin]

Marvellous, that's got me started, thanks James.

Regarding your comment: "Whether or not you're "employed" depends on the terms of your contract." - if we assume I am a "contractor" - i.e; I bill the US company for services each month rather than a "regular employee" - does that change my position at all? Presumably as a "contractor" I should still setup a scheme with HMRC for Employee's NI but then handle tax as a return at the end of the year?

Or would it be easier (for me!) to get a standard "you are an employee" contract from the US company - they're pretty flexible with most things.

Thanks again,

Stephen

[jamesbrown]

Whether or not you're "employed" depends on the terms of your contract. If you're employed, you'll need to set-up a PAYE direct scheme with HMRC for PAYE and Employee's NI (DPNI) because your employer has no UK tax presence. No Employer's NI is due. Otherwise, you can choose to operate through a U.K. umbrella, assuming the contract is within U.K. jurisdiction and governing law (unlikely a large US company would agree to that) or you can form a Ltd.

If you form a Ltd, the tax situation is not substantially different than a contract for a U.K. client, although the supply will be outside of the scope of VAT (most likely). Whether the contract is inside IR35 will depend on the working relationship (get your contract and proposed working practices reviewed), but you seem to view it as one of employment. YourCo and you will pay tax in the U.K. Note that you cannot do any productive work in the U.S. unless you're a U.S. citizen or have an appropriate employment visa. If you're a U.S. citizen, your personal tax situation is much more complicated too. Beyond that, you'll need an accountant and PI insurance for U.S. jurisdiction and governing law (if applicable), which is much more expensive.