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

[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]

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]

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.

[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.