Self employed vs On the Payroll
Discussion
Some advice if you please.
I'm potentially going to be offered a short term contract (6 months) to provide consultancy support to a large company.
They're likely to offer me the option of billing them as a sub-contractor or just going on the payroll as an 'employee'.
I wondered if someone could enlighten me on the pros and cons. Clearly (I presume) I can offset some expenses (e.g. my 500 miles/week in fuel) if I were self employed but this would involve the hassle of setting up a company and letting liability insurance.
Following on from this project theres a small (25%) chance that I'll continue sub-contracting which tends towards the self empployment option
That said, I'm a naturally lazy arse and will only go to the bother of setting myself up to sub-contract if it's sufficiently worthwhile.
Thoughts?
I'm potentially going to be offered a short term contract (6 months) to provide consultancy support to a large company.
They're likely to offer me the option of billing them as a sub-contractor or just going on the payroll as an 'employee'.
I wondered if someone could enlighten me on the pros and cons. Clearly (I presume) I can offset some expenses (e.g. my 500 miles/week in fuel) if I were self employed but this would involve the hassle of setting up a company and letting liability insurance.
Following on from this project theres a small (25%) chance that I'll continue sub-contracting which tends towards the self empployment option
That said, I'm a naturally lazy arse and will only go to the bother of setting myself up to sub-contract if it's sufficiently worthwhile.
Thoughts?
Now technically isnt the time to go self employed if you dont have a history and contacts in the self employment ind.
Having said that there is also many reasons to take the gamble regardless. Setting up is not that difficult. The benefits are that you can pick and choose who you work for and how hard you wish to work. You dep on contract can work onsite or at home. Of course you will also be paid more than someone on paye and you can offset a lot of your daily costs against your taxes.
Downside no paid holidays. No healthcare. No pensions scheme etc.
Its a mixed bag. I have been se for most of my life and enjoy it other than holidays as i tend to sit counting how much money i am losing by not being at work.
Having said that there is also many reasons to take the gamble regardless. Setting up is not that difficult. The benefits are that you can pick and choose who you work for and how hard you wish to work. You dep on contract can work onsite or at home. Of course you will also be paid more than someone on paye and you can offset a lot of your daily costs against your taxes.
Downside no paid holidays. No healthcare. No pensions scheme etc.
Its a mixed bag. I have been se for most of my life and enjoy it other than holidays as i tend to sit counting how much money i am losing by not being at work.
cheers
is it expensive and/or a hassle to maintain my own limited company (in terms of accountants fees etc)
also, which expenses are deductable? e.g. I'll be buying a car to travel 55 miles per day each way to work - how is that treated?
also, in terms of this particular project, even if I decide to be on the payroll, there'll be no paid holidays, pension or health either
is it expensive and/or a hassle to maintain my own limited company (in terms of accountants fees etc)
also, which expenses are deductable? e.g. I'll be buying a car to travel 55 miles per day each way to work - how is that treated?
also, in terms of this particular project, even if I decide to be on the payroll, there'll be no paid holidays, pension or health either
Edited by alfaspiderman2 on Tuesday 24th February 08:39
I've been self-employed for almost 18 months now and don't regret it.
There are drawbacks; you have to do all your own accounting for the tax man yourself, unless you pay someone to do it like I do. As mentioned above also, you don't get paid holidays or any benefit packages. Security is also an issue, but where your next meal comes from depends entirely on your confidence in the ability to find work once your contract is due to expire.
What you do get however, is the ability to work to your own initiative, choose your own hours (within reason), flit from company to company until you find somewhere you actually like (this has complications too however) and above all else, earn three times and as much as your colleagues sitting next to you (or more).
I also don't need to get embroiled in any office politics that poisons so many that struggle to climb the career ladder.
Unless I was offered a serious senior staff role (i.e senior management level), I wouldn't change being SE for the world.
There are drawbacks; you have to do all your own accounting for the tax man yourself, unless you pay someone to do it like I do. As mentioned above also, you don't get paid holidays or any benefit packages. Security is also an issue, but where your next meal comes from depends entirely on your confidence in the ability to find work once your contract is due to expire.
What you do get however, is the ability to work to your own initiative, choose your own hours (within reason), flit from company to company until you find somewhere you actually like (this has complications too however) and above all else, earn three times and as much as your colleagues sitting next to you (or more).
I also don't need to get embroiled in any office politics that poisons so many that struggle to climb the career ladder.
Unless I was offered a serious senior staff role (i.e senior management level), I wouldn't change being SE for the world.
alfaspiderman2 said:
cheers
is it expensive and/or a hassle to maintain my own limited company (in terms of accountants fees etc)
also, which expenses are deductable? e.g. I'll be buying a car to travel 55 miles per day each way to work - how is that treated?
also, in terms of this particular project, even if I decide to be on the payroll, there'll be no paid holidays, pension or health either
Effectively, anything to do with your business is vat deductable. Therefore, any kit you buy through your business is eligible for vat reclamation. This also includes travel expenses. is it expensive and/or a hassle to maintain my own limited company (in terms of accountants fees etc)
also, which expenses are deductable? e.g. I'll be buying a car to travel 55 miles per day each way to work - how is that treated?
also, in terms of this particular project, even if I decide to be on the payroll, there'll be no paid holidays, pension or health either
Edited by alfaspiderman2 on Tuesday 24th February 08:39
Be careful however. If you take the piss, you will be liable under IR35 legislation. Most importantly however, if you buy/finance a car through your business, you will have to pay company car tax. Far better to buy the car privately and then reclaim all your business milage etc.
Good info here:
http://www.businesslink.gov.uk/bdotg/action/detail...
You don't need to be vat registered if you're self employed until you turn over more than ~£64k
Forming a limited company would probably be overkill for what you want.
http://www.businesslink.gov.uk/bdotg/action/detail...
You don't need to be vat registered if you're self employed until you turn over more than ~£64k
Forming a limited company would probably be overkill for what you want.
alfaspiderman2 said:
that's really useful thanks
the agencies that I'll be dealing with insist on me setting up a limited company
This comment worries me slightly as agencies are only as good for getting you work as they can be arsed to be, meaning you are at the mercy of the agents. To my mind esp at this point in time having solid contacts within industry directly who can recommend projects to you or give you projects is a better position. Although yet again theres just so many variables depends how big your b@lls are basically and how much risk you are willing to take.the agencies that I'll be dealing with insist on me setting up a limited company
The taxable rate IIRC for mileage is 45p for the first 10k miles then 22p or something like that. Being self employed is really a pretty great lifestyle so long as you stay employed.If you can get into government contracts then you will have it fairly stable where income is concerned. My advice though would be to put away a percentage of each pay packet religiously in case you end up in a quiet period to tide you over as many contractors i have come across spend it as fast as they get it not realising that if work runs out so does money.
Form a limited company, it is cheap and easy to do and the tax benefits will make it worth while. Claim £500 a month and pay the rest (what ever you need) as dividends.
Depending on your turn over will depend if you must register for VAT, i would do it anyways as that way you can reclaim VAT on things like your petrol, which you would also put as an expense of the company. You still obviously pay for fuel, where as before you pay for it out of money you have already been taxed on.
Downside as mentioned are things like pensions etc but you can do all that through the company, including health insurance, telephones are also a company expense. Depending on how good your accountant is will depend on what you pay for. Your clothing too would be considered a business expense. So all those things you would pay for before tax. If you play it right you could end up paying no tax and having the VAT man owe you money.
Depending on your turn over will depend if you must register for VAT, i would do it anyways as that way you can reclaim VAT on things like your petrol, which you would also put as an expense of the company. You still obviously pay for fuel, where as before you pay for it out of money you have already been taxed on.
Downside as mentioned are things like pensions etc but you can do all that through the company, including health insurance, telephones are also a company expense. Depending on how good your accountant is will depend on what you pay for. Your clothing too would be considered a business expense. So all those things you would pay for before tax. If you play it right you could end up paying no tax and having the VAT man owe you money.
Not an expert here but you may risk falling foul of IR35 rules here. Using a payroll agency (not employment agency) will allow you to claim certain tax dispensations but you will still have a NI burden. LTD Company will allow you to pay no NI and divs but will take some setting up.
You know the tax man isn't going to make it easy for you to avoide him!
You know the tax man isn't going to make it easy for you to avoide him!
alfaspiderman2 said:
Some advice if you please.
I'm potentially going to be offered a short term contract (6 months) to provide consultancy support to a large company.
They're likely to offer me the option of billing them as a sub-contractor or just going on the payroll as an 'employee'.
1. HMRC states categorically that you cannot CHOOSE between employment or self-employment. Your status is determined by the facts of the case and the nature of the arrangement between you and those you are working for.
I wondered if someone could enlighten me on the pros and cons. Clearly (I presume) I can offset some expenses (e.g. my 500 miles/week in fuel) if I were self employed but this would involve the hassle of setting up a company and letting liability insurance.
[b]2. Self Employed individuals (i.e. sole-traders) are allowed to offset expenses incurred "wholly and exclusively in the furtherance of their trade". These expenses also include Capital Allowances on assets used in the business.
Employees can also offset expenses against their employment income but only if the expense was incurred " wholly, exclusively AND NECESSARILLY in respect of their employment"[/b]
Following on from this project theres a small (25%) chance that I'll continue sub-contracting which tends towards the self empployment option
3. If you have more than one customer (i.e. you work for more than one organisation) this is a useful indication that you are genuinely self-employed (although it does not constitute absolute proof).
That said, I'm a naturally lazy arse and will only go to the bother of setting myself up to sub-contract if it's sufficiently worthwhile
Thoughts?
You mentioned later on the idea of running your "business" through a limited company. This is entirely feasible but it does generate a lot more bureaucracy to deal with. Professional costs payable for the maintenance of a limited compnay are around two to three times what they would be for a similar sized sole-trader.I'm potentially going to be offered a short term contract (6 months) to provide consultancy support to a large company.
They're likely to offer me the option of billing them as a sub-contractor or just going on the payroll as an 'employee'.
1. HMRC states categorically that you cannot CHOOSE between employment or self-employment. Your status is determined by the facts of the case and the nature of the arrangement between you and those you are working for.
I wondered if someone could enlighten me on the pros and cons. Clearly (I presume) I can offset some expenses (e.g. my 500 miles/week in fuel) if I were self employed but this would involve the hassle of setting up a company and letting liability insurance.
[b]2. Self Employed individuals (i.e. sole-traders) are allowed to offset expenses incurred "wholly and exclusively in the furtherance of their trade". These expenses also include Capital Allowances on assets used in the business.
Employees can also offset expenses against their employment income but only if the expense was incurred " wholly, exclusively AND NECESSARILLY in respect of their employment"[/b]
Following on from this project theres a small (25%) chance that I'll continue sub-contracting which tends towards the self empployment option
3. If you have more than one customer (i.e. you work for more than one organisation) this is a useful indication that you are genuinely self-employed (although it does not constitute absolute proof).
That said, I'm a naturally lazy arse and will only go to the bother of setting myself up to sub-contract if it's sufficiently worthwhile
Thoughts?
If your sole-tradership was in danger of being reclassified as an employment, then if you tried to block this by running through a limited company, the limited copmpany could fall foul of the IR35 provisions. However, please note that IR35 NEVER applies to individuals - it is reserved for those who operate through a limited company or a partnership.
Thanks for the helpful advice.
I've not got any firm views either way on the limited company vs sole trader issue.
It'll only ever be myself (i.e. I'll never be employing anyone) and (I hope) my turnover will be over the £67k VAT threshold.
I plan to speak to an accountant to get a firm steer on the right way to go.
I've not got any firm views either way on the limited company vs sole trader issue.
It'll only ever be myself (i.e. I'll never be employing anyone) and (I hope) my turnover will be over the £67k VAT threshold.
I plan to speak to an accountant to get a firm steer on the right way to go.
alfaspiderman2 said:
Thanks for the helpful advice.
I've not got any firm views either way on the limited company vs sole trader issue.
It'll only ever be myself (i.e. I'll never be employing anyone) and (I hope) my turnover will be over the £67k VAT threshold.
I plan to speak to an accountant to get a firm steer on the right way to go.
If you expect your income to be of that level straight away, it MIGHT be worthwhile considering a limited company right from the off. Just be VERY, VERY aware of all the issues surrounding IR35 as it still looms like a great dark cloud over any "personal service company". However, if you proceed with caution, are careful with the wording pf any contracts and, even more important, mqaintain a relationship with the business you are working for which NEVER gives any indication that you might be using your company as a "block" to normal employment, then you should be OK.I've not got any firm views either way on the limited company vs sole trader issue.
It'll only ever be myself (i.e. I'll never be employing anyone) and (I hope) my turnover will be over the £67k VAT threshold.
I plan to speak to an accountant to get a firm steer on the right way to go.
If using an agency to obtain work, you will also need to be aware of the contract terms that the agency uses between THEM and the orgnaisations they place you with. A recent legal case involving a company called Dragonfly Ltd saw a contractor LOSE his IR35 argument against HMRC even though all his own contracts were compliant. He hadn't thought to check on the agency contracts.
I would strongly recommend looking at joining the Professional Contractors' Group (PCG) who offer lots of really useful tax and legal advice for people who operate as contractors through their own limited companies.
From my experience a good accountant will charge upwards of £1000 per year for limited company BUT will do everything for you including your personal tax returns as well as company stuff and ensure your tax bill is, ahem, efficient but above board (e.g. make some NI payments, use up tax allowances) - it is likely that the expense will be recouped in the first year but it does depend on your prospective turnover - below a certain point and it's not worth it. My accountant got me a tax rebate in the first year that more than paid his fees. Most accountants will give you a free initial consultation to discuss this as also you do need to be able to justify using a limited company but that is usually quite straightforward (e.g. providing consultancy to clients).
alfaspiderman2 said:
I've not got any firm views either way on the limited company vs sole trader issue.
Looking to the future, I suspect you'll find it's a fact of contracting life that most, if not all, agencies won't go anywhere near you if you're a sole trader. Simple reason is that if you, say, skip the country not paying HMRC their cut, then the agency becomes liable. Yes, of course there are ways that this could be worked around contractually but the agencies just won't bother.Personally, I would set up a limited company, get a recommended accountant, apply to be on the VAT flat rate scheme (remembering to get my extra 1% for first year trading and judiciously choosing my SIC code), join the PCG, work my little cotton socks off at the first contract and constantly be on the lookout for more work. Easy
vxr8mate said:
You know the tax man isn't going to make it easy for you to avoide him!
Oh purleeeeze. They are THE most inept fools ever. I have written on here before how when i asked how they knew how much tax i was meant to pay they told me they rely on me to tell them that.
When asked what if i simply dont send in my tax return or dont know how much i owe they told me they make an ASSumption of how much i owe based on my previous years tax return. SO working on that logic all i have to do is make sure my first tax return shows i only owe a very small amount of tax then each following year simply not bother sending in my tax return and wait for them to ASSume i owe roughly the same.
Have you considered an Umbrella Company? I pay a few quid a week and they do all my tax/payroll work for me, absolutely no hassle and very helpful. Just send them a timesheet and a week later a payslip turnes up and the money is in my account.
Also I get nearly all the tax benefits/mileage claims of being self employed.
Also it means I am a full time employee which helps with loan guaruntee/insurance exclusion issues.
Also I get nearly all the tax benefits/mileage claims of being self employed.
Also it means I am a full time employee which helps with loan guaruntee/insurance exclusion issues.
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