contracting as sole trader
Discussion
In the process of setting up as a sole trader for gas work. Planning to do 3 days a week contracting for a big company via an agency and then the rest of the time do my own work. I thought it was as straight forward as invoice the agency monthly for the work carried out. After a chat with the boss of the agency im now confused as he mentioned tax and various things which didnt seem to make a lot of sense the way he was putting it. He asked whether id be working for anyone else doing contracting work and if not this would have tax implications. To my mind im just a sole trader who does work for a company a few days a week and gets paid per job. I have no employment rights and im taxed at 20% of my profit. Can anyone advise if this is correct?
Alrey87 said:
. He asked whether id be working for anyone else doing contracting work and if not this would have tax implications.
A lot of companies hire 'employees' but pay them as contractors, these are known as 'disguised employees'. Your hirer needs to make sure you tick the boxes so they are confident that you are not a employee as they can get heavy fines for breaking this rule.https://en.wikipedia.org/wiki/IR35
Edited by hyphen on Monday 1st February 11:16
hyphen said:
Alrey87 said:
. He asked whether id be working for anyone else doing contracting work and if not this would have tax implications.
A lot of companies hire 'employees' but pay them as contractors, these are known as 'disguised employees'. Your hirer needs to make sure you tick the boxes so they are confident that you are not a employee as they can get heavy fines for breaking this rule.https://en.wikipedia.org/wiki/IR35
Alrey87 said:
In the process of setting up as a sole trader for gas work. Planning to do 3 days a week contracting for a big company via an agency and then the rest of the time do my own work. I thought it was as straight forward as invoice the agency monthly for the work carried out. After a chat with the boss of the agency im now confused as he mentioned tax and various things which didnt seem to make a lot of sense the way he was putting it. He asked whether id be working for anyone else doing contracting work and if not this would have tax implications. To my mind im just a sole trader who does work for a company a few days a week and gets paid per job. I have no employment rights and im taxed at 20% of my profit. Can anyone advise if this is correct?
Are you sure that the agency understand that you are operating as a ST & not a Limited Company (a PSC)? The problem arises if you just work for one customer as HMRC don't see you as independent but as an employee & will tell your customer to deduct tax & NI before they pay you. The difference (well, one of them) between a PSC & a ST is that if you're a PSC & HMRC challenge the arrangement then you are liable for back tax & NI wheras if you're a ST then the customer is liable - hence many won't use Sole Traders. If you've found one that will then that's great.The key is to have a number of different customers then you can show HMRC that you really are trading in your own business. I trust as a ST in the gas business you've got excellent business insurance. Don't forget you are the business so everything you own is on the line.
Alrey 87- a sole trader is not a limited company.
Sole traders pay income tax on their trading profits. They pay income tax at either 20% or 40% or 45% depending on their income levels. They also pay Class 2 and Class 4 National Insurance.
Limited companies pay Corporation Tax on their trading profits. Directors of limited companies pay Income Tax and Class 1 Employee's National Insurance on salaries they receive from their limited company.
Shareholders pay income Tax on dividends they receive from their company.
Limited companies (as employers) also pay Employer's NI on the salary they pay their directors and employees.
IR35 applies to those who operate as contractors through a limited company (or other form of intermediary) but it DOES NOT and never has applied to sole traders.
I was going to suggest that you give me a call as I deal with this kind of stuff every day. However, you do not allow e-mails through your PH profile.
Sole traders pay income tax on their trading profits. They pay income tax at either 20% or 40% or 45% depending on their income levels. They also pay Class 2 and Class 4 National Insurance.
Limited companies pay Corporation Tax on their trading profits. Directors of limited companies pay Income Tax and Class 1 Employee's National Insurance on salaries they receive from their limited company.
Shareholders pay income Tax on dividends they receive from their company.
Limited companies (as employers) also pay Employer's NI on the salary they pay their directors and employees.
IR35 applies to those who operate as contractors through a limited company (or other form of intermediary) but it DOES NOT and never has applied to sole traders.
I was going to suggest that you give me a call as I deal with this kind of stuff every day. However, you do not allow e-mails through your PH profile.
Thanks Eric. Very kind of you. To be fair I think you’ve answered my question already. The contract manager seemed to be under the impression that IR35 would apply to me as a sole trader which it doesn’t.
As such I don’t have to worry, just invoice him and all my other customers as normal and pay tax on my profits.
As such I don’t have to worry, just invoice him and all my other customers as normal and pay tax on my profits.
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