Current permco raised "would you like to contract for us"... IR35? Contract?

[matty]

Hi all! Today's noob question relates to contracting for my current permco...

So, current permie co have raised possibility of offering me a contract as they are struggling to source a replacement, and asked if I would be interested if it comes to that. This has some appeal as it would ease me into things and my guess is it would be relatively temporary - probably 3 months I think.

I'm NW based, as is the main (only 'real') client office. The contract is likely to include 2-3 days a week in London (where they have a tiny wework satellite 'office') so it would involve some travel + accommodation + subsistence.

I'm thinking of still spinning up a Ltd as I want the experience of doing that side, and do expect longer term to operate on that basis (and anyway this might start and then suddenly stop if they find someone).

IR35? & expenses
From the reading I've done it feels pretty certain I should just assume I'm in IR35 as trying to justify otherwise feels tricky.

(which I'm not too worried about btw as this will be fairly short and I'll only take it if the day rate makes sense given the likely tax deductions)

- Is that a fair assumption? Or are their realistic ways of setting things up to leave as permie and then start as a genuine outside IR35 supplier?

- If I am inside IR35, would I be better off going with an umbrella for this first one and wait to go the ltd route later on a 'real' contract? Some of my reading talks about switching between the two over time depending on the contract at the time - but that sounds a little odd to me if paying a monthly accountant?

- If I am inside IR35, I assume I can't put expenses through my ltd (or at least not really any tax advantage to doing so). So, if client is willing to bear expenses in mind, is there any particular advantage / disadvantage to any of...

1. Higher flat day rate and I deal with expenses myself
2. Invoice clientco for expenses from my Ltd
3. Claim expenses through client system as I do now (remembering this is assuming I'm in IR35)

Going Direct
Based on the discussion, if it does come about then they will want to contract me direct (ie: not via an agent). I'll have to do some reading up as most of my reading so far is heavily around the ltd-agency-client model as that seems to be the norm. Can anyone point me at useful articles that directly focus on this or call out any big gotchas - I have already read about payment delays, but any other biggies I should read up about?

Cheers all!

[LondonManc]

You're inside IR35, no question about it. Not a reason not to go contracting and works no differently in terms of your relationship to and rights with the client that if you were through limited and outside; it's simply the payment vehicle and tax mechanism that differs.

Expenses is a big one for you though as you are balls deep in IR35 on this gig. From April you won't get them through the umbrella co, but you can, if it's in your contract, claim them back off your client. Have a think about what your average expenses per week were as a perm and add 10% for hassle factor if you're going to add it to your day rate. Or simply raise it with the client that they should deal with it through their existing expenses process.

I'd recommend an umbrella co - Lisa has posted on here today; she's a good first port of call for newbies wanting to go umbrella.

In terms of going direct, the key things are the contract and the longer payment terms (typical to work January, invoice first week in Feb, get paid first week in March) so you'd need a few grand to tide you over.

[northernladuk]

You will be a Friday to Monday contractor which was the exact reason IR35 kicked off. You are doing the work of, and is being treated like a permie albeit with a different remuneration method. To HMRC you are still a permie. No if's and but's.

[LondonManc]

You will be a Friday to Monday contractor which was the exact reason IR35 kicked off. You are doing the work of, and is being treated like a permie albeit with a different remuneration method. To HMRC you are still a permie. No if's and but's.

Quite a nice way to start contracting I guess, as long as you're happy to be firmly between the cheeks of IR35.

[TheFaQQer]

- If I am inside IR35, would I be better off going with an umbrella for this first one and wait to go the ltd route later on a 'real' contract? Some of my reading talks about switching between the two over time depending on the contract at the time - but that sounds a little odd to me if paying a monthly accountant?

You are going to be inside IR35.

So, the question to consider is whether you are going to continue contracting after this contract, or not bother. If you are, then I would set up a limited company and get to grips with it - I like to have the chain between me and my money as short as possible, so adding someone in who adds little to no value but can run off with the cash doesn't appeal to me. You have the chance to have no-one else in the chain, so I would take it. Costs will be about the same overall - accountancy vs brolly fee, but you will get some VAT saving if you are on FRS, you'll be setup for other work when you find it, and you reduce the number of people that can run off with your money (I may have mentioned that last bit before).

If you aren't ready to do that, then find a reputable umbrella company (maybe do a check on their financials too?) and go work for them.

- If I am inside IR35, I assume I can't put expenses through my ltd (or at least not really any tax advantage to doing so). So, if client is willing to bear expenses in mind, is there any particular advantage / disadvantage to any of...

1. Higher flat day rate and I deal with expenses myself
2. Invoice clientco for expenses from my Ltd
3. Claim expenses through client system as I do now (remembering this is assuming I'm in IR35)

You'd have to run the numbers and see what you come up with. If you invoice the client, then you can get some VAT money if you're on FRS. If you include it in your day rate, then you're quids in for every day that you don't incur the expense.

Even inside IR35, there are allowable expenses that can be used - for example pension contributions, and travel and subsistence (until April) are allowed. Then you pay tax on 95% of what's left. For my IR35-caught contract, I pay the majority of the income (actually, now it's all of my income) from the contract into my pension so there's no deemed salary to pay tax on.

[northernladuk]

Quite a nice way to start contracting I guess, as long as you're happy to be firmly between the cheeks of IR35.

You are just trying to bait me aren't you.. Starting contracting by being a permie at your old employer?? Grrrrrr......

[TheFaQQer]

You are just trying to bait me aren't you.. Starting contracting by being a permie at your old employer?? Grrrrrr......

Gets you used to contracts and the practicality of running a business

[matty]

Yeah, it's all a cunning plan to annoy you NLUK . Elaborate I know, but that's just how I rock

Thanks for the replies all, useful info LondonManc and TheFaQQer thanks.

It may not even happen for so many reasons, and I am definitely making the jump, so on balance think i will go with setting up Ltd. That way if it falls through last minute or shortly after starting I'm ready to go, and if I do manage to get a non ir35 contract afterwards I'm also ready to go!

And anyway, I spent all that time last night thinking of a cool co name. So... you know, waste not want not.

[northernladuk]

You know, this lad might actually be COTBAC!

[LondonManc]

You are just trying to bait me aren't you.. Starting contracting by being a permie at your old employer?? Grrrrrr......

Gets you used to contracts and the practicality of running a business

Two award winners right there. The FaQQer knows what I meant.