Having been made redundant at the end of September, I am in the process of setting myself up as a self-employed consultant (CAD/IT/BIM advice and training). My former employer has offered me a three month contract, two days per week as an employee on 2/5 of my former salary, including pro rata holiday etc (AKA a pittance). I would much prefer to do this on a self-employed basis and have calculated an hourly rate based on previous advice from this august forum. It’s considerably less than my former charge-out rate (my overheads are low) and less than they currently pay another external consultant doing similar work. They say that they’re not allowed to employ me as a self-employed consultant for at least three months after my redundancy “for tax reasons”. I smell BS and suspect they’re trying to leverage me into accepting what, for them, will be a much cheaper deal. Can anyone enlighten me?

Having been in a similar position, my understanding is that what they are telling you is technically right, although I know of others who have been made redundant and immediately started working for their former employers on a contractor basis. The tax reasons relate to any redundancy payments made to you, I believe.

The reason is tax related….

Effectively, with having you as a self employed consultant there would be a risk to the company that HMRC may challenge the arrangement and argue that it is an employed relationship rather than self employed. The company could then be hit with an employers national insurance charge and penalties etc.

A popular arrangement for IT consultants and the similar professionals (in particular high profile public sector individuals (but that is another story)) is to set up a company themselves and then have that company engage your former employer for your services.

This doesn’t necessarily remove the risk of HMRC challenge to the arrangement, but it shifts the risk from your former employer to your company.

It may be worth suggesting this kind of arrangement to see if your former employer would consider it. But if they are, I would seriously consider getting some “proper” tax advice.

(PS I am a chartered tax advisor, so would be happy to talk through it with you informally, or indeed formally should you wish)

If you want to contact me grahamDOTbirdATsgllpDOTcoDOTuk

Hope that is of some help!

Graham