Reply to: Fulltime staff to part time distant contracting

[pr1]

Treat it as inside IR35 and no problems

[danyjr]

Small business exception - assuming it's valid so the Chapter 8 rules of IR35 apply.

Which mean your company invoices your client and they pay you in full. Your company is then responsible for paying the correct amount of tax which for an inside IR35 contract means it either goes into your pension pot or is treated as PAYE income.

What you describe is deemed payments and it screws up pensions which is the reason why you need to use an umbrella when Chapter 10 of IR35 applies.

Thanks eek . Yes, the "client" (the company I'm currently working for) is a small company. I have checked their accounts just to be sure.

It looks like I will have to build in all the benefits/extras (expenses, pension) they are giving me into my monthly invoices. Which they seem to be onboard with.

[danyjr]

northernladuk I said in the original post I wasn't trying to reduce my taxes/NI. I'm sorry if it appeared as though I did, but I clearly stated that in the OP.

[northernladuk]

1. Re MoO. Yes the contract does allow me to take on projects from other clients simultaneously. The client may not veto other contracts.

That is not MoO. That might have helped in the old business entity tests but MoO (or lack thereof) is about the current contract with your client.
You are also only guessing when you talk about simultaneously as well. It would depend on the terms of the contract you get.

Re RoS. No. I am the only person who can do this job hence why they want me in the first place due to my knowledge.

So this is personal service and not engaging a third party so has to be inside by default.

Re D&C. No supervision, direction or control over my work. I will also not be moved from task to task, the remit for this contract is very clear.

You said they would tell you what to work on. That's D&C

1- The nature of what I will be doing will be exactly the same as I'm doing now.

So you are doing the same thing but under a different payment vehicle. Slam dunk inside.

2- Thanks. A year would not work for us, 6 months is a maybe.4

Which would indicate you aren't doing it for genuine reasons, but just to get around the tax status so inside.

3- No, we don't know much about IR35. But also I'm not trying to reduce my taxes/NI. I'm happy to pay what I am paying now to HMRC and so is my employer. Only that we want to shift it to contract so I can also do contract for others.

You appear to be arguing it with us very hard to say you don't know much about IR35 (which is very clear).

You can dress it up how you want and change the goal posts, even though you don't appear to understand what they are, but you aren't going to get us to change our minds.

I think it's time to say 'Yeah its OK, go ahead and fill your boots' as you are clearly trying to convince us of something you are going to do anyway as you aren't listening to any advice.

[eek]

Thanks eek

Do you know how this would work? This is my understanding:

Falling outside IR35:
The contractor will set up a limited company. This limited company will pay the contractor/director a low salary as well as low NI contribution. The company will then pay corporate tax on net profit. What is left is paid as dividends to the contractor thereby avoiding 'employee' tax rates.

Falling inside IR35:
The contractor will set up a limited company. The limited company will pay the contractor/director the exact amount it has earned as salary, as well as the appropriate NI contribution based on this salary. No corporate tax to be paid on a zero net profit. No dividends left to be paid to the contractor. The contractor will then pay tax/NI on their income.

Looks like I will be double whammy’d with NI and having to pay it twice, once through my limited company’s NI contribution and again NI paid as an employee.

Have I misunderstood something?

Small business exception - assuming it's valid so the Chapter 8 rules of IR35 apply.

Which mean your company invoices your client and they pay you in full. Your company is then responsible for paying the correct amount of tax which for an inside IR35 contract means it either goes into your pension pot or is treated as PAYE income.

What you describe is deemed payments and it screws up pensions which is the reason why you need to use an umbrella when Chapter 10 of IR35 applies.

[danyjr]

So you will need to ensure the pension + salary payments from your company are the same or greater than what the company is paying you.

Do that and you've got nothing to worry about assuming you can find other outside IR35 work (which following the recent MSC case could be harder as a lot of people are now using it to scare agencies into not offering outside IR35 contracts).

Thanks eek

Do you know how this would work? This is my understanding:

Falling outside IR35:
The contractor will set up a limited company. This limited company will pay the contractor/director a low salary as well as low NI contribution. The company will then pay corporate tax on net profit. What is left is paid as dividends to the contractor thereby avoiding 'employee' tax rates.

Falling inside IR35:
The contractor will set up a limited company. The limited company will pay the contractor/director the exact amount it has earned as salary, as well as the appropriate NI contribution based on this salary. No corporate tax to be paid on a zero net profit. No dividends left to be paid to the contractor. The contractor will then pay tax/NI on their income.

Looks like I will be double whammy’d with NI and having to pay it twice, once through my limited company’s NI contribution and again NI paid as an employee.

Have I misunderstood something?

[eek]

1- The nature of what I will be doing will be exactly the same as I'm doing now.

2- Thanks. A year would not work for us, 6 months is a maybe.

3- No, we don't know much about IR35. But also I'm not trying to reduce my taxes/NI. I'm happy to pay what I am paying now to HMRC and so is my employer. Only that we want to shift it to contract so I can also do contract for others.

So you will need to ensure the pension + salary payments from your company are the same or greater than what the company is paying you.

Do that and you've got nothing to worry about assuming you can find other outside IR35 work (which following the recent MSC case could be harder as a lot of people are now using it to scare agencies into not offering outside IR35 contracts).

[danyjr]

1 - For the third time - the part-time hours makes no difference. You say you will be consulting on an as and when basis but what actual work will you be doing when you get the call to put your underpants on over your trousers to leap in and save the day? Is it the same as what you do today or completely different tasks that you have never done before for the company but just happen to have picked up and become an indispensable expert in?

2 - There is no set amount of time but it needs to be long enough that there is clearly no enduring relationship between you and your employer. I'd say at least six months, 12 to feel safe.

3 - I have no idea what you're asking. Have you read anything about IR35 and, more importantly, has your employer? It sounds like neither of you have a clue.

I am increasingly of the opinion that this hair-brained scheme was dreamt up by a middle manager who couldn't interview a potato for the role of a chip and it hasn't gone anywhere near HR or legal yet.

1- The nature of what I will be doing will be exactly the same as I'm doing now.

2- Thanks. A year would not work for us, 6 months is a maybe.

3- No, we don't know much about IR35. But also I'm not trying to reduce my taxes/NI. I'm happy to pay what I am paying now to HMRC and so is my employer. Only that we want to shift it to contract so I can also do contract for others.

[eek]

2. They are a small business as per the Employment Status Manual.

In which case all the risk sits with you so do what you want but HMRC will regard the contract as inside so keep the cash to one side as if / when HMRC come calling arguing the case will cost you £100,000+....

[danyjr]

Going back to the original question, you're saying that some weeks you'll do 1 or 2 days for your current employer, other weeks you won't work for them at all. So, suppose you were offered a full-time contract working for someone else. Would you be able to accept it, or do you need to keep those days clear? I.e. are you effectively "on call" for 2 days a week? Also, suppose that you do keep those 2 days clear but then your current employer doesn't need you. Will they be paying you some kind of retainer, or would you be turning down other contracts just so that you can sit at home waiting by the phone?

The discussions are ongoing, however my current employer will be paying me a retainer should no work be there for me to do. The truth is they need me and they are happy to be flexible. I'm not going to take advantage of this as they have treated me exceptionally well, but paying me for 2 days per week is a given and agreed, even if there is no work needed on the project for weeks.

[danyjr]

There's no specific time limit, but it's a red flag if you're jumping from employee to contractor.

Here are a couple of questions for you:

1. There are 3 "pillars" of IR35: MoO (Mutuality of Obligation), RoS (Right of Substitution), and D&C (Direction and Control). In your proposed scenario, would you answer yes or no for each of them?

2. Who is responsible for filling in the SDS, you or your current employer? Putting that another way, do they count as a small business? See:
ESM10006 - Employment Status Manual - HMRC internal manual - GOV.UK (www.gov.uk)

1. Re MoO. Yes the contract does allow me to take on projects from other clients simultaneously. The client may not veto other contracts.
Re RoS. No. I am the only person who can do this job hence why they want me in the first place due to my knowledge.
Re D&C. No supervision, direction or control over my work. I will also not be moved from task to task, the remit for this contract is very clear.

2. They are a small business as per the Employment Status Manual.

[northernladuk]

1- "You can't leave a company on a Friday and join it as a contractor on a Monday doing the same job". Key word here is "doing the same job", which it essentially not true. I will be a part-time consultant on a 'whenever they need me' basis, not full time and won't be having the same responsibilities as before.

Which is more or less what you are doing now and they want YOU as a person to do what they want. The fact you are personally wanted, not your LTD with a suitably qualified person means it's a contract for service not of service i.e. you and also you will be caught by Direction and Control. You also won't be able to Substitute so that is 2 of the 3 major pillars failed plus the personal service. It's inside all day long.

2- In failing to convince the above, how many months is required between leaving my current company and working for them as a contractor for it to not be deemed falling inside IR35?

6 months absolute minimum IMO and if you are going in personally to use the knowledge you have of your client then never. Even with a time limit the job has to change else it's just a sham to get you back in. This is complex stuff, not something you can bypass with a few tweaks here and there. HMRC have done everything they can to put roles inside so going back to any employer, at anytime is a risk at anytime, let alone for one person they need because of historic knowledge. This one is not going to be outside whatever you do. Let it go and go be a proper contractor. You'll not get another part time role to fill your time anyway.

3- Should I decide to work as a contractor immediately for them, would this be an "off-payroll" IR35 contract?

No. https://www.freeagent.com/glossary/o...ublic%20sector.

Just leave them, be a proper contractor and get on with your career. This is just sounding desperate now. You've not addressed the point I've made three times now which is it is unlikely you'll find a part time role to fill the rest of your week. You aren't looking for a solution you are trying to fix one problem without considering the next.

I am increasingly of the opinion that this hair-brained scheme was dreamt up by a middle manager who couldn't interview a potato for the role of a chip and it hasn't gone anywhere near HR or legal yet.

And I totally agree.

I'd also guess they client has no idea about the new regulations that put the risk on them and they determine the role. No way would any client put their neck on the block for one person and lie about this being outside. It's clearly not and if you/they get caught your client will pay. I'd also bet their legal haven't had a say in this crock of you know what yet either.

[ladymuck]

Thanks for your replies. A couple of questions come to mind:

1- "You can't leave a company on a Friday and join it as a contractor on a Monday doing the same job". Key word here is "doing the same job", which it essentially not true. I will be a part-time consultant on a 'whenever they need me' basis, not full time and won't be having the same responsibilities as before.

2- In failing to convince the above, how many months is required between leaving my current company and working for them as a contractor for it to not be deemed falling inside IR35?

3- Should I decide to work as a contractor immediately for them, would this be an "off-payroll" IR35 contract?

1 - For the third time - the part-time hours makes no difference. You say you will be consulting on an as and when basis but what actual work will you be doing when you get the call to put your underpants on over your trousers to leap in and save the day? Is it the same as what you do today or completely different tasks that you have never done before for the company but just happen to have picked up and become an indispensable expert in?

2 - There is no set amount of time but it needs to be long enough that there is clearly no enduring relationship between you and your employer. I'd say at least six months, 12 to feel safe.

3 - I have no idea what you're asking. Have you read anything about IR35 and, more importantly, has your employer? It sounds like neither of you have a clue.

I am increasingly of the opinion that this hair-brained scheme was dreamt up by a middle manager who couldn't interview a potato for the role of a chip and it hasn't gone anywhere near HR or legal yet.

[hobnob]

My question is, can I quit my current job and immediately work as a part time and distant contractor for my current employer, working max 2 days a week for them as I will be involved in other contracts too?

Going back to the original question, you're saying that some weeks you'll do 1 or 2 days for your current employer, other weeks you won't work for them at all. So, suppose you were offered a full-time contract working for someone else. Would you be able to accept it, or do you need to keep those days clear? I.e. are you effectively "on call" for 2 days a week? Also, suppose that you do keep those 2 days clear but then your current employer doesn't need you. Will they be paying you some kind of retainer, or would you be turning down other contracts just so that you can sit at home waiting by the phone?

[hobnob]

There's no specific time limit, but it's a red flag if you're jumping from employee to contractor.

Here are a couple of questions for you:

1. There are 3 "pillars" of IR35: MoO (Mutuality of Obligation), RoS (Right of Substitution), and D&C (Direction and Control). In your proposed scenario, would you answer yes or no for each of them?

2. Who is responsible for filling in the SDS, you or your current employer? Putting that another way, do they count as a small business? See:
ESM10006 - Employment Status Manual - HMRC internal manual - GOV.UK (www.gov.uk)