Reply to: Staff to contract advice

[Wanderer]

I mean why should I be penalised because I'm good at invoicing, chasing up unpaid bills and don't manage to lose over 10% of my income over a year, it is the revenues ball and you have to play the way that they say.

You are penalised because you were a permie and you want to switch to working for an employer as a LTD company and lots of people did this as a purely tax avoidance move. Maybe it's not why YOU want to do it, but that's what HMRC see a large number of cases as being.

If you want more flexibility then why not stay permie and have a talk to your employer about changing your working practices? If they won't wear it for a permie then they won't accept it as a permietractor either.

[Hex]

I think it's fairly clear that you could do the existing role as a contractor, but that you should consider it inside IR35. As has already been said you could do this through your own limited company and this would give you the 5% tax free and also an option to pay some of it directly to your company pension, the result would have to be paid as salary.

As you are considering doing work for other clients as well, then these engagement may be able to be viewed as outside IR35 and so you could build up company funds from these, or pay dividends while having the inside IR35 contract paying you salary.

[randalf]

Agreed but are you really going to be able to make such a culture change at your ex employer? As a manager I wouldn't agree to swap you to a contractor who does all the above because it would just piss ever other employee off something shocking. What is more likely is your ex employer will just contrinue to treat you the same so you gain nothing except a hidden permie title. To do that you have to start afresh IMO.

Just out of interest have you broached this idea with your employer at all or just wishful thinking?

It has been broached and as you would expect it didn't go down too well.

The issue is that it's a multi site company and both my boss in the London office as well as all of the other people performing my role within the European offices are all contractors so in general everyone assumes I'm a contractor unless they know different.

This discussion has been useful as I'd not really considered going down the contractor route and classing it as within the IR35 regs - everything I did through my company in the past managed to stay on the right side of HMRC's opinions even with the tightening up that they did a few years ago

A further option would be just waiting and making the jump to another organisation, however I have concerns that it would cause a breakdown in the relationship between me and the company I'm working for and may well prevent me from working with them in the future.

[ASB]

Agreed, but I've only seen very experienced contractors (who understand forecasting and budgeting) do this.

That's certainly true. Nearly everything I did whilst still contract was fixed price, but effective day rates were significantly enhanced when deriving the price in order to try and mitigate the risk.

I've also had a number of clients who had a view of fixed price that was "maximum price", I would never go for that. In effect I was shouldering all the risk for no potential reward.

[northernladuk]

No not at all.

I like the flexibility of a contractor lifestyle.

Contracting gives you the opportunity to drop your working hours to suit the work that is available or to finish the work off sooner. Giving you the opportunity to go for more work or to have more leisure time.

I actively hate the scenario where you are working as a staff employee and have no work to do. The employer has an obligation and a vested interest to keep you busy and as such you get extra work dropped on you that may or may not be to your own interests and strengths.

If it is then great, well done. If not then it can be a slog where you actively hate going into work every day.

That's what the contractor lifestyle means to me.

Agreed but are you really going to be able to make such a culture change at your ex employer? As a manager I wouldn't agree to swap you to a contractor who does all the above because it would just piss ever other employee off something shocking. What is more likely is your ex employer will just contrinue to treat you the same so you gain nothing except a hidden permie title. To do that you have to start afresh IMO.

Just out of interest have you broached this idea with your employer at all or just wishful thinking?

[randalf]

How on earth is changing the way you are paid and staying with your ex-employer living the contractor lifestyle?

I think your mail is actually asking about moving from staff to hidden permie.

No not at all.

I like the flexibility of a contractor lifestyle.

Contracting gives you the opportunity to drop your working hours to suit the work that is available or to finish the work off sooner. Giving you the opportunity to go for more work or to have more leisure time.

I actively hate the scenario where you are working as a staff employee and have no work to do. The employer has an obligation and a vested interest to keep you busy and as such you get extra work dropped on you that may or may not be to your own interests and strengths.

If it is then great, well done. If not then it can be a slog where you actively hate going into work every day.

That's what the contractor lifestyle means to me.

[cojak]

I often see this. And I certainly agree that if you are on some sort of day rate etc it will be incredibly hard.

However, if you agreed a fixed price project, plus warranty etc why should that not pass. Although with the old employer it is a fundamentally different arrangement.

Agreed, but I've only seen very experienced contractors (who understand forecasting and budgeting) do this.

[ASB]

And my take on this is that there is effectively no way you can contract with your ex employer and be outside IR35.

I often see this. And I certainly agree that if you are on some sort of day rate etc it will be incredibly hard.

However, if you agreed a fixed price project, plus warranty etc why should that not pass. Although with the old employer it is a fundamentally different arrangement.

I'm not saying it would pass, I just think it should under those circumstances.

It would still be high risk in the entity tests of course.

[northernladuk]

I'd been a contractor running a limited company for about seven years then due to a contract cancellation and some personal reasons preventing me following the work out of the area I had to accept a staff job.

I've been doing the staff job now for a couple of years and I'm missing the contracting lifestyle so I have been making enquiries about the current state of play regarding IR35.

My understanding is that if I were to move from Staff to Contract within the same organisation then this would be considered a bad thing from the HMRC regards the risk category I would fall into.

How on earth is changing the way you are paid and staying with your ex-employer living the contractor lifestyle?

I think your mail is actually asking about moving from staff to hidden permie.

If you want the contractor lifestyle you need to jack your job in and go be a proper contractor, not a hidden permie constantly looking over their shoulder for the world of trouble that will come their way if they get investigated.

And my take on this is that there is effectively no way you can contract with your ex employer and be outside IR35. If, and that is a big if, it really is a move from a staff job to one they needed to get another business in to help them you have a bigger fight than most of us on to prove it. They will take an immediate stance of inside and you have to argue otherwise, something that seems to be difficult to do without the ex-staff status hanging over you.

[scooby]

Expand on if the role is the same you would be doing if perm?

It's get complicated, but I'm back at an old place (left for 6mths) in a different role. My saviour is that the PM role I'm doing now varies immensely from perm. As perm, I was a team manager of a bunch of PM's / programme managers and the projects I worked on were Printer rollouts and Enterprise printing, but mainly escalations etc.

The reason Im back is that I have a particular set of skills that they dont have internally. I'm now heavily focused on a large BPO deal, pre-sales then delivery. no management, and separate from the perm team. I have MOO, Sub (and likely to be able to place someone IF i needed to as the skills i have are Company knowledge and another area were i already know of resource if needed...) and D&C is heavily in my favour as this is the reason they asked me back, to sell a solution and then make it work. the client knows full well my position and is accepting that this is how it has to be. He is getting the skills he wants, and I'm building clients as we go. I'm also not tied to handcuffs etc, so the end customer of my clients are fair game, and I'm already discussing one or two things (totally unrelated to client) with the customer. Works for everyone!!

Similar job title, but working practice is very different! I spoke to Qdos, several email, proof etc, and they are happy to cover me.

[Sally@InTouch]

If you're planning on moving back to contracting long-term wouldn't it be better to setup a Ltd company and just accept that this contract is inside IR35. Accountant fees are usually less than umbrella fees. You get the 5% allowance for expenses. Just a thought.

I'll second that. You'll also have the company all set up for any other work that may come along, and, the option of company pension contributions which are deductible before calculating the deemed payment for PAYE.

[Bunk]

If you're planning on moving back to contracting long-term wouldn't it be better to setup a Ltd company and just accept that this contract is inside IR35. Accountant fees are usually less than umbrella fees. You get the 5% allowance for expenses. Just a thought.

[cojak]

So apart from the additional NI hit is there any real issue with working through an umbrella company at the same location as you have worked staff?

Not if you don't claim expenses.

See the debate above if you do.

[Sally@InTouch]

Since the OP seems to imply that they would be doing one contract through an umbrella before moving onto their own Ltd, then surely the client can no longer be classed as a temporary place of work, regardless of the 24 month rule?

The temporary workplace rules rely on either not spending more than 40% of time on one site, or when the expectation of being on site for 24 months or more arises. As I interpret the rules, this is regardless of whether the employer has changed from permanent, umbrella or own limited company. So, however the Op chooses to structure themselves, the workplace would not be a temporary one.

[randalf]

I'm coming round to the thinking that umbrella may be the way to go in the short term, although those employer NI contributions are pretty high. The effective tax rate would be approaching 50%.

My real issue is that I have been neglecting former clients in the last two years and it will take time to rebuild that.

The current company had some bad experiences with self emplyed people doing my, admittedly, very specialist role in the past and they deliberately wanted a staff person.

From their perspective now though they had to put me into a managerial grade to offer a competitive salary, when the role is very definitely not managerial in nature which is causing an issue. Add into that the variable workloads and there is a real argument for a contractor offering more flexibility and cost efficiencies than I can offer as a staff employee.

My own experience with the company would give me a competitive advantage over any other contractor and working for six to twelve months at the same location would appear to be a win-win scenario as it allows me to cultivate old and new clients while maintaining a baseload of work.

So apart from the additional NI hit is there any real issue with working through an umbrella company at the same location as you have worked staff?