Reply to: Contracting for/on behalf of my current firm....thoughts? (Not an IR35 question)

[vwdan]

I declined the offer

[vwdan]

As NLUK stated your contract will definitely have a restraint of trade clause.

The client list is not yours if your ex-employer is managing you. From people I know who have had restraint of trade clauses in the past in different industries, yours will be one that will be very restrictive and most likely stick if you try and challenge it in court as you are a direct business competitor of your management company.

Even now if you set up as a limited from being a permie, if the restraint of trade clause is written properly in your employment contract if your employer challenges it it will stick.

Hmm - yeah, this is a really good point and not something I'd thought of. There are no restrictions in my current contract, so I'm okay at the moment - but yeah, in 12 months time it could easily been seen as walking away with my employees clients.

BTW at the moment what benefits does your employer give you? I suggest you get your contract and other employee paperwork out, and list them.

Nothing beyond the standard benefits of being employed. No health care plan, no fancy pensions etc.

[SueEllen]

But if I'm keeping a client list and people are working with me is anyone going to care who I'm working under when they call me - if I switch to Ltd after a year, then I can't see that having a negative impact with those who I've already built a reputation.
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As NLUK stated your contract will definitely have a restraint of trade clause.

The client list is not yours if your ex-employer is managing you. From people I know who have had restraint of trade clauses in the past in different industries, yours will be one that will be very restrictive and most likely stick if you try and challenge it in court as you are a direct business competitor of your management company.

Even now if you set up as a limited from being a permie, if the restraint of trade clause is written properly in your employment contract if your employer challenges it it will stick.

The fact that both of you are small companies competing in the same market helps your ex-employer.

BTW at the moment what benefits does your employer give you? I suggest you get your contract and other employee paperwork out, and list them.

[vwdan]

Sorry for being daft. Where is the £50k coming from. Invoiced directly from the clients you are now getting business from or from the ex-employer?

50k is all directly from my clients.

[northernladuk]

PAYE may be the wrong phrase, but ultimately here's how the costs look in my head, taking £50k as a starting point.

Sorry for being daft. Where is the £50k coming from. Invoiced directly from the clients you are now getting business from or from the ex-employer?

[northernladuk]

I think I know where you're heading - I don't want to have a mega debate over this specifically, so we'll just disagree for the moment. I don't think there's a major risk to me here, at least in the earlier days. I'd rather earn a few quid doing it than being sat earning zero.

Check your contract, it is likely it says you can't work for his clients. If you do you will be technically in breach of contract, something he can pull out of the bag when it suits him and then potentially claim all the money you made out of all the clients of his you worked for. Dodgy ground having a gentlemen's agreement to forget a clause in a contract.

[vwdan]

OK, I get that - except you still haven't worked out that it is your effort that gets the money to pay for the NICs, your "employer" is merely carrying on doing the paperwork but now at zero cost to them

Agree with this for the most part.

Call me mercenary, but I rather like to keep all the money I earn and work out what to do with it from there. I also have an aversion to paying over 20% more taxes than I need to by letting someone else control my money. But hey, it's your choice; a wrong one - you would be better off with a conventional umbrella if a Limited is too scary - but if you're happy...

Nope, I have the same aversion and feelings - except the sums just haven't worked out how I anticipated. I've posted them up and I'd love to hear any critique, because, yes - when he first mooted the idea over a coffee my first thought was that it'll never fly. I certainly haven't ruled out that I've missed out something huge.

Also just noticed the bit about working for their customers... Don't.

I think I know where you're heading - I don't want to have a mega debate over this specifically, so we'll just disagree for the moment. I don't think there's a major risk to me here, at least in the earlier days. I'd rather earn a few quid doing it than being sat earning zero.

[vwdan]

Economics 101 - a business's first duty is to make profits for it's shareholders.

Labour costs are a big cost of doing business and lowering costs is one way to increase profits.

In short your employer is trying out a "scheme" to reduce their labour costs. They may not make money out of doing it with you at the moment, but I bet when they have refined this "scheme" they definitely will.

If you worked through a traditional umbrella or a limited company, clients would know your name not your ex-employer. So when they want repeat business who do you think they will ask for? You or your ex-employer?

BTW I would also suggest you first do a google search on "fake self employment" and "fake redundancies". If your ex-employer insists on going ahead with their scheme then go and talk to an employment solicitor. Lots give free 30 minute consultations.

Sue, this is absolute a fair comment but to my knowledge, the only shareholders are within the company. It's a very small firm and these discussions are with the MD/Owner - I certainly have a lot of questions about this is going to work for them (Which I'll be asking on Monday when I'm back in the office) but I'm willing to take at face value that they're willing to work with me in the hopes that we can end up in a win/win situation. I do wonder if the charges will increase over time though - so you've definitely given me something to think on. If it's "close" now, I expect it will only get worse and worse as time goes on. But if I'm keeping a client list and people are working with me is anyone going to care who I'm working under when they call me - if I switch to Ltd after a year, then I can't see that having a negative impact with those who I've already built a reputation.

Do bear in mind that the ONLY reason this conversation has come about is because I stated my intention to leave. He knows that throwing money at me is a short term fix and I'm seeking a different way of working. Again, something I'd have never ever done at other companies, unless I was handing in my notice so I hope you can believe that things are a little different here. They have an exceptionally low staff turnover and it's also been stated clearly that my place as a permie will remain if I crash and burn. One of the other lads was taken back after dipping his toe in another company for around a year.

[vwdan]

This is starting to make sense. Just explain the PAYE bit again then. What is the exact relationship with your ex-employer then?

PAYE may be the wrong phrase, but ultimately here's how the costs look in my head, taking £50k as a starting point.

Income: £50,000
10% Admin Fee: -£5,000
Gross Salary: £45,000
After Tax: £33,063 [From "The Salary Calculator"]

The 10% is agreed, though the accountant recommended 12% minimum:
Admin Fee: £-6000
Gross Salary: £44,000
After Tax: £32,483

Or, through a Ltd. company, something like:

Income: £50,000
Insurance + Accountancy + PCG: -£2000 [Approx]
Take Home: £34,560 [Working on a take of ~72% using calculator from SJD]

Which, to me, doesn't look as different as I'd ex-ect. I realise I've not taken into account VAT, so if I were in the Flat Rate scheme I'd get an extra £1900 in the first year.

So, it seems to me, with best case expenses I'm going to be ~£3400 better off in my company, or 6.8%. But that doesn't take into account some of the less mandatory, but nice things - stuff like MSDN.

I've deliberately not taken into account one-off costs, and truth be told, I think £50k is pretty bloody optimistic for my first year. I can "live" with a lot less and have enough savings for a year at worst case but that is meant to be a house deposit one day so I'll be doing my best to avoid dipping in.

Anyway, that's the cold figures as I understand them - I realise it's not that cut and dry but like I say, there's less in it than I anticipated. If I've made some mistakes I'd be keen to hear any different opinions or points.

[SueEllen]

My employer WILL pay the NI - from the management fee, that has been agreed. In this instance, the company would be the umbrella company - I don't see any tax implications here. I'll pay more tax than running a Ltd Co. (What I mean when I say Self Employed, by the way), but the idea is that it will be offset by not requiring my own insurance and accountancy. This isn't a profit making exercise for my company and I do believe that.

Economics 101 - a business's first duty is to make profits for it's shareholders.

Labour costs are a big cost of doing business and lowering costs is one way to increase profits.

In short your employer is trying out a "scheme" to reduce their labour costs. They may not make money out of doing it with you at the moment, but I bet when they have refined this "scheme" they definitely will.

If you worked through a traditional umbrella or a limited company, clients would know your name not your ex-employer. So when they want repeat business who do you think they will ask for? You or your ex-employer?

BTW I would also suggest you first do a google search on "fake self employment" and "fake redundancies". If your ex-employer insists on going ahead with their scheme then go and talk to an employment solicitor. Lots give free 30 minute consultations.

[malvolio]

My employer WILL pay the NI - from the management fee, that has been agreed. In this instance, the company would be the umbrella company - I don't see any tax implications here. I'll pay more tax than running a Ltd Co. (What I mean when I say Self Employed, by the way), but the idea is that it will be offset by not requiring my own insurance and accountancy. This isn't a profit making exercise for my company and I do believe that.

OK, I get that - except you still haven't worked out that it is your effort that gets the money to pay for the NICs, your "employer" is merely carrying on doing the paperwork but now at zero cost to them


Call me mercenary, but I rather like to keep all the money I earn and work out what to do with it from there. I also have an aversion to paying over 20% more taxes than I need to by letting someone else control my money. But hey, it's your choice; a wrong one - you would be better off with a conventional umbrella if a Limited is too scary - but if you're happy...


Also just noticed the bit about working for their customers... Don't.

[northernladuk]

I'll start backwards and say I can see where you're coming from by saying "do it properly". I certainly haven't ruled it out, by any stretch. BUT, to be clear - just like if I was running my own company, I will be seeking my own clients and I will be setting my own rates and doing my own negotiations.

The only time this wouldn't be the case is if they want me to do work for one of "their" customers. In which case, they'll have to pay my day rate. Now, actually, this is the bit I'm not sure will pay off for them because, naturally, it's my target to be busy elsewhere 100% of the time. Not likely to happen in my first year of contracting, but that's the target nonetheless. But that's something I need to discuss.

So, in terms of getting work - it seem to me there's no disadvantages (Unless agencies/customers don't like or understand that I'm part of more), but the potential advantage of being able to fill in work when I'm on the bench.

I want to clarify that I've not started this thread to simply argue with every point people are making - I've already said I'm not sold/convinced by it, BUT I do think there are some misconceptions as to what's going on. Essentially, it's just a fancy umbrella company, really.

This is starting to make sense. Just explain the PAYE bit again then. What is the exact relationship with your ex-employer then?

[vwdan]

Sounds like a load of crock to me. As Mal says you are giving up everything else for no gain and potentially no work if the client doesn't want to give you it. Remember the flexibility you crave works both ways so they have the same flexibility to not give you work and get rid when they feel like it. I don't fully understand how this will work but I am sure there are many other issues with this situation.

Surely how much you are contracted out is set by them, not you. You are the supplier.

Why not just bin them off altogether and do it properly?

I'll start backwards and say I can see where you're coming from by saying "do it properly". I certainly haven't ruled it out, by any stretch. BUT, to be clear - just like if I was running my own company, I will be seeking my own clients and I will be setting my own rates and doing my own negotiations.

The only time this wouldn't be the case is if they want me to do work for one of "their" customers. In which case, they'll have to pay my day rate. Now, actually, this is the bit I'm not sure will pay off for them because, naturally, it's my target to be busy elsewhere 100% of the time. Not likely to happen in my first year of contracting, but that's the target nonetheless. But that's something I need to discuss.

So, in terms of getting work - it seem to me there's no disadvantages (Unless agencies/customers don't like or understand that I'm part of more), but the potential advantage of being able to fill in work when I'm on the bench.

I want to clarify that I've not started this thread to simply argue with every point people are making - I've already said I'm not sold/convinced by it, BUT I do think there are some misconceptions as to what's going on. Essentially, it's just a fancy umbrella company, really.

[vwdan]

Secondly if you work for your current employer as a contractor it's a continuation of your previous employment as it's not a redundancy situation. This means you are liable to pay employers NI and employees NI. Your current employer will not pay the employers NI as they aren't legally obliged to.

If they don't make you use a limited company or an umbrella company to work through as self-employed then you are liable for a different class of NI. However as their aim is to save money they won't allow you to work as self-employed so you will have to use a limited company or umbrella company.

My employer WILL pay the NI - from the management fee, that has been agreed. In this instance, the company would be the umbrella company - I don't see any tax implications here. I'll pay more tax than running a Ltd Co. (What I mean when I say Self Employed, by the way), but the idea is that it will be offset by not requiring my own insurance and accountancy. This isn't a profit making exercise for my company and I do believe that.

[malvolio]

Your post is clear.

You are a mug if you take this on.

Your current employer is trying to get rid of their legal obligations to you as an employee to save money.

If you want to go down the self-employed route why give them money as a management fee? Sort out your own clients and get a reputation for your own businesses name without having them as a wrapper.

Agreed...


You want to be a contractor, fine, go and be one. If you can get clients on your own terms and by your own effort, also fine. If so what does your employer bring to the party exactly? Contractors work for themselves, nobody else. It's rather the point of why we do it.


However, are your employer's clients buying your skills or your employers? (Think carefully before you answer that one). If you won't get clients other than by being an ersatz employee of your current employer then you lose out, badly.


No matter how good the relationship, companies exist to make money. If you think someone is offering you free money, they aren't: there will be an up side for them or they wouldn't bother. In your scenario, you do all the work, you bring in the income, they get a fair sized chunk of it for doing nothing they aren't already doing with much reduced risks and overheads.


You may be happy with the idea, just don't ask any of us to work that way.