Teleworking as a sole trader from the UK for a non-EU (Swiss) client (former employer

[NotAllThere]

It's interesting - the other way around, if you live in Switzerland and work for a non-Swiss based employer, you can opt to be paid gross and account for any NI (AHV) due - both employers and employees - yourself. There's no question of the employer having to pay the Swiss authorities a rappen.

[Gonderange 78]

Thanks! This is pretty well the decision I arrived at too - trying to keep out of IR35 is going to be too difficult and being a sole trader could lead to deemed employment, while being actually employed would definitely mean problems for my employer. I managed to get through to someone in HMRC this morning who did know her stuff on this and employer (secondary) NICs would be payable by my Swiss employer (contrary to what the badly-expressed HMRC guidance note says) and they would take fright at that. They employ a service company to deal with payroll and accounting and it is just not geared up to taking on UK payroll admin obligations in parallel with existing Swiss ones, not to mention the 13.8% employer NIC contribution which is much more than they currently pay for me in Geneva.

So forming a company but operating inside IR35 looks the best bet, although I might consider a brolly to avoid yet more financial admin - I already have to deal on a personal basis with tax offices in three countries I have worked in over the years. But I quite fancy the greater freedom that operating a company would bring, even within IR35.

[WordIsBond]

If you are a sole trader, there is always a risk of being deemed to be an employee of the engager, with all the problems that could trigger. It's unlikely to happen, but it could. If they are risk averse, you can't do sole trader without lying to them about the risks.

The only way to certainly protect the engager from UK liabilities is to form a limited company. Then, you are an employee or officeholder of the LtdCo, rather than their employee, and so under no circumstances would they be dragged into UK liabilities. The full responsibility (IR35 and everything else) would be on your company.

If you form a limited company, they are protected completely, but IR35 concerns come into play. IR35 is intended to ensure that you pay taxes like an employee if you are one. The reason for this is to prevent you taking advantage of the favourable tax treatment of dividends, as compared to the tax treatment of salary.

In your case, the difference between the two is not a lot, since you are of state pension age and don't have to pay Class 1 NI. For the moment leaving pension contributions and other allowable expenses out of the picture, the difference between operating outside of IR35 and inside is about £2500, on the first £43K of income. That's not nothing, but there may also be ways to lessen it.

In both cases, your first £11K would be paid in salary. You would pay no tax on the first £8K and employer NI (13.8%) on the next £3K. Outside IR35, you would pay dividends above that, and you would pay 20% on the next £5K (Corporation tax), and net 26% (CT plus Div Tax) on the next £27K. If you decided not to fight the IR35 battle, you could instead just pay salary on the next £32K, and it would cost you 33.8% (Employer NI, Income Tax).

For income above £43K, outside IR35 you would pay effectively 46%. Inside, you would pay 53.8%.

Another benefit to a limited company -- you can make pension contributions from the company. This is completely tax-free until you draw down the pension. Pension contributions are exempted from any IR35 considerations. And when you do take it, 25% is tax free, and none of it incurs NI.

If you operate inside IR35, and depending on what your pension situation is, and given your age, you may even be able to get creative in making annual £10K pension contributions from your company and taking an annual £10K pension drawdown. That would move £10K from your company into your hands without any Corporation Tax, any NI liability, and Income Tax only on £7.5K. But you should only do this if you know exactly the ramifications. If you do this even once, you'll never be able to make a contribution larger than £10K again. But that may not be an issue for you.

I am not an accountant or a pensions expert, and this kind of stuff is definitely something for which you should get professional advice.

The key points here, to me, are 1) if you want to strictly protect the NGO, a limited company is the only way to be sure of doing so, and 2) that puts you at risk of IR35, but you can operate inside it and still be pretty tax efficient.

Further to IR35, you might be able to make a case that you are outside. It appears Supervision / Direction / Control is very limited. Managing interns isn't necessarily problematic, I spend a lot of time telling my clients' people what to do. It depends on what that "management" looks like. Telling them how to do a task is fine. Performance reviews, hiring/firing, determining salaries, that's problematic. If they are unpaid/volunteer interns, or very short-term, it's probably a non-issue.

The budgetary control is the kind of thing that would point towards employment. The fact that you've been an employee would point towards employment. The fact that this was your idea rather than theirs is a plus for you. The fact that you are moving off-site and out of the country is a plus for you, especially since at least one other person that did that is not an employee any longer.

I think you could probably beat IR35, but I don't think it is worth it to even try. Since you are state pension age, I'd just form a LtdCo and operate within IR35. Be as tax efficient with pensions as you can. Set your fees high enough to cover your travel expenses -- foreign travel expenses will be allowable under IR35. It's probably better if you pay travel expenses, rather than having them do so, because of the way the deemed calculation payment works -- you get a 5% deduction before allowable expenses are taken off. Structure it as efficiently as you can within IR35 and you'll do fine with it.

One other thing -- if you go LtdCo, perhaps you could keep your eyes open for pieces that you could break off as a separate project and do at a fixed cost. That kind of thing wouldn't be under IR35. So you could operate your main contract under IR35 (and make your pension contributions and expenses out of those funds) but have smaller fixed-price contracts that aren't under IR35.

Ok, I've gone on long enough.

[Gonderange 78]

The guy in Brazil is a Swiss national who lives there permanently and works through a company he has set up there, but I suspect Brazil is not too onerous about such things. The person in Canada I have no idea about - she just moved home there from Colombia while still working for us, but her status I don't know, although I suspect she may just be winging it. We do however have two regular employees in Brussels, having registered an outpost office there last month to deal with the EU. So we don't have a consistent approach to offsite working.

I'm not much supervised or directed in my ongoing work - in fact I have to produce my own work planning, operating within the organisation's overall strategic guidelines - which we make suggestions about when they are being developed, but it's the Board which decides on them. There is no-one else engaged in documentation management: I'm the Head of Documentation and the only person able to fulfill this role in the NGO. I manage a few interns, often also remotely by online communication as we are spread across 3 buildings in Geneva, one quite a distance from the others. One of my specific roles is to find and implement a replacement documentation management system (we run a publicly accessible website and database of documents in a very niche field) and no-one else in the organisation can do that. OK, I don't have authority to buy the new system - the Director would need to do that - but my recommendation is going to be very influential. I do have direct budget responsibilities, albeit with a tiny budget, but payment requests all have to be signed by our Director. I would not, if in the UK (and don't now), represent our NGO (unless speaking at occasional conferences counts as such). Unlike in some of my previous roles elsewhere, I don't have decision-making autonomy except at the technical level of getting documents online.

Much of the work consists of analysing and adding metadata to a flow of incoming UN and related documents in our niche field and this is ongoing - a process rather than a project. I've done projects elsewhere with more finite outcomes, but here it's managing an ongoing and endless flow of incoming documentation, primarily online. The relatively few hard-copy items would be dealt with on visits to Geneva twice a month. I'd really have to think how to try to present this in a more 'project' light. The main problem is likely to be my employers taking fright at the idea of MAYBE getting caught under IR35 later if HMRC dispute the nature of the beast. Their idea of self-employment is to be able to wash their hands of liability for team members afar, but probably they could be less at risk if I was simply employed in the UK.

Employment status in the UK and its consequences for my current employers would hinge hugely on what exactly the phrase "where the employee is inside National Insurance" means in the HMRC guidance note for UK employees without a UK employer. National Insurance for people in the UK working where there is no employer in the UK I am beyond the age when I make primary (employee) NI contributions of any kind, and the guidance note states that secondary (employer) NI contributions arise if the employee is "in National Insurance", which I don't seem to be.

Deloitte seems to also take the line that it is employee liability for primary (employee) NI payments which triggers employer liability for secondary (employer) payments. https://www.taxpublications.deloitte...C?OpenDocument

The wording in the Guidance Note carries the logical meaning that if the employee is not subject to making NI contributions (what else could not being "inside National Insurance" logically mean?) then the employer also escapes, but it doesn't square with what currently happens for employers actually based in the UK, who do have to pay NI at 13.8% for over-65 employees. Maybe the wording is deliberate - these EU Regulations came into force after a long process of EU and EEA horse-trading and maybe some countries objected to the idea of employers having to pay the equivalent of NI for older workers (or have no concept of older workers at all). I should probably go through the EU Regulations in detail but they are literally hundreds of pages long and overwhelmingly deal with social security issues rather than employment so it's a bit like looking for a needle in a Brussels haystack.

My employer is likely to be risk averse if there is any prospect at all of them getting caught up by IR35, but equally wary of creating a formal employee situation in the UK with liability for employer NI payments. They would have been happiest if the UK was like Brazil, where the likes of IR35 don't seem to be much in evidence ... I think I am going to have to work the phones with HMRC if I can ever find the right number - my employers just couldn't do it: I had to explain Swiss tax law to them last year .......

[WordIsBond]

I would not be so certain that OP is necessarily an employee.

Are the people in Brazil and Canada employees or self-employed/independent? If they are not employees, it would be easier to argue that the change in locale is indicative of a change in status. Employees on site, contractors off-site and out of the country.

How much are you supervised in your work? How much supervision / direction / control is there? You said "documentation organisation" -- are you making organisation decisions, or are they making those, and you implementing them?

Is it feasible for you to do this work on a fixed cost rather than hourly basis? If so, that would probably yank you right out of any IR35 / employment concerns, if you've been hourly before but are fixed cost now.

How much Mutuality of Obligation is there going to be?

Do you have employee benefits now, and will you be forgoing any of them? Or, would you be willing to forgo them for a higher rate?

Before just saying that I was inside IR35, I'd read up on it and consider a restructuring of your relationship, if possible, to put you outside it. If you can get an IR35 friendly contract, it is going to be difficult for HMRC to prove you are inside, because they can't compel the engager to discuss your case with them. You can give them the contract and have someone (IPSE or QDOS) represent you, and they will probably go chase someone else. And honestly, at 60% time and at your age, you aren't likely to be worth chasing for them anyway.

So that's where I'd start. See if you can structure things with enough changes to justify an outside-IR35 status, and then probably go sole trader.

[jamesbrown]

As the request to do this came from me, rather than my employer wanting to transfer me to the UK, and they are only willing to do it if hassle for them is minimised, I think I'm going to have to hold their hand on this and present them with their options, who to contact and where, etc. I don't think they would have a clue where to start. I suspect the UK's 13.8% employer NI charge on my salary is going to be more than they have to pay to Canton Geneva for the similar Swiss charge, so it could be a sticking point.

My employer will probably only do this if it's cost-neutral to them, and if I have to take a salary hit to compensate, plus still need to attend meetings in Geneva from time to time (they will not pay for travel or accommodation) then the savings made by working from home in the UK are going to be considerably offset by Geneva travel and accommodation costs plus any salary reduction to keep employer costs neutral.

It may be financially preferable to look at remaining employed in Geneva but living in cheaper France and commuting across the border - about half of Geneva's working population already does - but these 'frontalier' arrangements are, for UK passport-holders, likely to become very tricky once Brexit bites.

Anyway, thanks for all the helpful advice and information. I will fly the UK idea past my employers again, but am not over hopeful ...

Sure, it may not be equitable. You could always have them call HMRC directly about their NI situation, if they don't want to take independent advice. Alternatively, you could call HMRC and relay the situation to your employer, together with a contact person. Again, they would ordinarily need to setup the NI payments (via HMRC, who will create the employer record for them), and you would need to set-up the PAYE direct scheme for income tax (DPGEN). Alternatively, you should be able to file a SATR at year end, rather than using RTI (I think HMRC generally offer this as an alternative to a PAYE direct scheme).

I assume you're not involved in the administration of their business (e.g. have contract authority), which could create a permanent establishment for your employer (and, hence, other liabilities).

Of course, if you're acting in a self-employed capacity, that changes things completely, but it depends on the facts, and it sounds like you're an employee.

Bottom line, it really shouldn't be too difficult if you're a regular employee, working from home, and not acting as an agent of the NGO in the UK. However, whether it's equitable in comparison to your current arrangement is another matter, and you may need to share the hit.

[Gonderange 78]

As the request to do this came from me, rather than my employer wanting to transfer me to the UK, and they are only willing to do it if hassle for them is minimised, I think I'm going to have to hold their hand on this and present them with their options, who to contact and where, etc. I don't think they would have a clue where to start. I suspect the UK's 13.8% employer NI charge on my salary is going to be more than they have to pay to Canton Geneva for the similar Swiss charge, so it could be a sticking point.

My employer will probably only do this if it's cost-neutral to them, and if I have to take a salary hit to compensate, plus still need to attend meetings in Geneva from time to time (they will not pay for travel or accommodation) then the savings made by working from home in the UK are going to be considerably offset by Geneva travel and accommodation costs plus any salary reduction to keep employer costs neutral.

It may be financially preferable to look at remaining employed in Geneva but living in cheaper France and commuting across the border - about half of Geneva's working population already does - but these 'frontalier' arrangements are, for UK passport-holders, likely to become very tricky once Brexit bites.

Anyway, thanks for all the helpful advice and information. I will fly the UK idea past my employers again, but am not over hopeful ...

[jamesbrown]

Oh, and if there's no NI, I think the scheme you'll need for your personal taxes is DPGEN, not DPNI, but HMRC will advise on the precise scheme for direct PAYE/NI.

[jamesbrown]

You should have your employer seek expert advice on their own liabilities. They're going to need to do this anyway - they can't just half-arse the placement of an employee in another country. I understand that they're an NGO and that you want to minimise their hassle, but they are ultimately responsible for establishing their status in the UK, and they shouldn't be relying on your advice for that. However, you can advise them about your own tax status. In this particular instance, based on what you've said, it should be pretty straightforward for your employer to establish their own status; professional advice should not be too expensive, but they must seek that.

To set up a DPNI scheme, contact your local HMRC office once you're ready to proceed. You may not immediately find someone that knows how to do this, but there will be someone that does know - it isn't complicated.

[Gonderange 78]

Many thanks to everyone for the rapid and informative responses!

I didn't realise that there had been a change in 2012 and that a Swiss employer could be treated as being UK registered or as having a place of business in the UK: many thanks for the information! From the responses received, it looks like I could remain an employee of the Swiss NGO after all.

However, I'm still not entirely clear what should happen in my case, particularly as regards consequences for my current employers, because:

(a) I am 66 so I would have no UK National Insurance employee contributions to make anyway.

(b) Employers in the UK do have a liability to make employer NI contributions even for employees over 65 but the change in 2012 to include Swiss employers of employees based in the UK indicated in National Insurance for people in the UK working where there is no employer in the UK indicates that "an employer in another European Union (EU) Member State will also be treated as being UK registered or having a place of business in the UK for National Insurance purposes where the employee is in UK National Insurance". Being sufficently venerable, I would not be in UK National Insurance so, from the wording above , then logically neither would my Swiss employer and therefore they would be exempt from paying any employer UK NI contribution. Is my interpretation correct? (I don't see how they could pay employer NI anyway as they have no UK presence or business associates of any kind).

As for my income tax, a DPNI scheme would indeed seem to be the way to go.

[jamesbrown]

I don't think there exists any legal provision to make me as the 'shadow employee' of a Swiss client liable for deemed 'employer' NIC or other obligations, but it would be good to be more sure of this! I don't want to get myself into a legal morass or my current employer / future client in Geneva into one either.

All advice gratefully received!

P.s. There is, since 2012. An employer based in Switzerland is considered UK resident for NI purposes.

[jamesbrown]

You say you need to set yourself up as a contractor, but I don't see why. If you're an employee, you're an employee, and your employer may have responsibilities in the UK. For an employee of a company with no UK presence, you need a PAYE direct scheme (DPNI for PAYE and NI) whereby you organise your personal tax via the PAYE system. Bear in mind that your employer may establish a presence for NI purposes too:

National Insurance for people in the UK working where there is no employer in the UK

Of course, you may choose to become self-employed, but it needs to reflect reality, regardless of the particular way in which you operate (sole trader or Ltd).

[Fred Bloggs]

If you no longer have to pay NIC's why would IR35 be a worry to you? IR35 is all about paying NIC's on all earnings, clearly it can't apply to you can it? Sole trader sounds a perfect solution for you, good luck.

[Gonderange 78]

I currently work part-time (60%) dealing with online documentation indexing and organisation for a small Swiss NGO in Geneva. My wife works in the UK and I'm looking to relocate back home, not least because on an NGO salary the cost of accommodation and compulsory health insurance in Geneva is high.

Most of my work is possible by teleworking (I already telework from home in Geneva much of the time) although the occasional face to face meeting in Geneva or New York would still be needed, especially at certain UN Conference times where we have a full-time presence.

The NGO is willing to let me work from home in the UK (it already has people doing so from Brazil and Canada) but has no organisational presence in the UK so I would have to operate as a contractor. I would be doing exactly the same work as before, for a single client (the other 40% of my time was supposed to be working for another Swiss foundation but so far it has failed to find funding so I am not yet getting paid for any work done although hope springs eternal!), so I would be in a classic IR35 situation if I were to form a UK limited company.

I was however considering operating as a sole trader because of less administrative hassle and paperwork. I would be under the VAT threshold and am now (rather to my surprise until I look in the mirror) 66 and so no longer required to pay even Class 4 NI contributions.

My uncertainty is over where the liabilities and penalties might rest if HMRC considers this to be disguised 'employment', as well they might. Our NGO is registered in Geneva and has no legal presence in the UK, so the only target within effective reach of HMRC would be me! I don't think there exists any legal provision to make me as the 'shadow employee' of a Swiss client liable for deemed 'employer' NIC or other obligations, but it would be good to be more sure of this! I don't want to get myself into a legal morass or my current employer / future client in Geneva into one either.

All advice gratefully received!