After being made redundant three weeks ago I've been offered a new job with an Architects practice in Sheffield. Sounds great and the pay is actually better than before but they want me to do it on a self employed basis and on month to month contracts.
I have no problems with that in principle and with the state of the business at the moment i understand why they want to do it like that.
However I've been searching around for the pro's and con's of being self employed and according to the Inland Revenue, working on this basis may not acually be considered to be self employment, for example i would be working set hours, at their office, using their equipment, risking non of my money etc.

Anyone have any views or experience of this?

Sounds like you may be falling under the joys of IR35. If it reletively short term working through an umbrella company may be a good option. They will help sort all you tax out as well.

I'm self employed in Belgium doing a similar thing (songle client, office based, fixed hours etc) without problems

but

my sister in law is self employed in the UK and has told me that she must be working for more than one employer or the Inland Rev tell her she has to join the client direct. They don't seem bothered about workplace etc but basically they get the trick being played here and enforce against it. May vary area by area though and could be you can get away with it for a while before they kick up (I'd be shocked if they'd give you a problem for a couple/3 months anyway)

Speak to an accountant, you'll need one if you want to be self employed anyway

I think there's plenty here do it but I'm not up on the ins & outs but Google 'umbrella companies'

What you need to be concerned with is it being perceived by HMRC that it's a 'disguised employment' (IR35). You need to demonstrate that you're taking on the risk of employment – which is easy in the trades and not so easy in the professions.

On way to do this is to undertake each peice of work as a formal instruction – which will require a fee proposal and an acceptance from the practice. Then you can opperate as a Sole Trader.

I was in a similar situation and am now working as a Sole Trader doing a lot of work for one Practice but also doing other work

It seems the problem you have is that you'll be only working for this practice and using their equipment. Do you have your own/personal AutoCAD and computer and therefore able to seek external work?

As long as you do other works for other Client's or at least actively seeking other work you'll have no problems.

Might be worth booking a hour with a business advisor to get some formal advice and not rely on informal (ie non-indemnified) advice off a cycling forum 🙂

Yes i did find IR35 and then my eyes kind of glazed over!

I suspect the arangement will be long term, maybe a couple of years or more.

I really need to get a handle on this in the next day or so as i have to tell them if i want the job or not!

Cheers Mk1fan, thats exactly the situation. I do have my own computer with Autocad on it so i could make an effort to find other work as well i guess. They have said that they will help me sort everything out as well.

Yes you are indeed right about the advice thing, its just that we appear to have such a massive cross section of people on here all with different experience and skills that I often find I can get the answer on here!

This situation only cropped up this morning when they rang up and offered me the job and they need an answer by the weekend which doesn't leave me much time.

The odd thing is they have already given me an hourly rate and told me i can have 25 days holiday a year which doesn't sound much like self employment to me.

This kind of happened to me a couple of years ago. I got taken on by a small research company but not as PAYE. So I am a self employed sole trader. I work for them monthly and invoice them monthly. It probably falls under IR35, I pointed this out to them so I now have the freedom of taking on my own work. As long as a little job comes in every now and again it should get around the IR35 problem.

Umbrella companies are good – then you can pay yourself dividends and a minimum wage (less tax). However – I am pretty sure the cost of an accountant a year to do this for me wouldn't cover any tax savings (I may be very wrong though).

If you've been offered holiday that's good. Sounds like they are avoiding PAYE costs their end. It seems to be happening an awful lot nowadays.

I guess if there's potential for long term employment this way you could consider forming your own Ltd company, of which you'd be a director with (ideally) your partner as co secretary, you drawing as small a PAYE as poss to avoid paying too much NI, rest of your income is via the dividend (profit share) route, if necessary paying the co secretary enough to fill up their income right to just below the 40% cut-off point to reduce or nullify your 40% liability, claiming reasonable expenses for travel and office equipment, paying an accountant to sort all the guff out for you (approx £100/month + VAT), register for flat rate VAT if you deem that to be worhwhile et voila!

This only really works if you're earning good money and can see it lasting long enough to justify the set-up and accountancy costs.

Umbrella companies are suspect. Beware.

As others have already said, seek professional advice.

You need a business adviser – shame you're in Sheffield as there are a few [qualified] guys round me (in Sauf Landan) that would give you and hours advice to help you for free.

Don't forget that the Practice is saving a lot of money by having you as self-employed rather than as an employee. Which is why IR35 is about.

Oh, you don't say what you do (I assume an Architect) but I'd make sure you're working at their risk to avoid PI issues.

as said above you're almost certainly going to be swept up by ir35- this sounds almost like temping.

You won't be able to go down the ltd company/dividends route if so, and if you go with an umbrella company I think you'll have to pay tax on all your income, less expenses- although Naranjada says differently- I thought ir had closed that door, but it's been a while since I looked at that.

In any case, you'll be able to do the role, it's just that some of the err 'opportunities' to minimise your tax won't be avaialble to you.

I think when I said umbrella companies are suspect, I meant they don't allow the freedom of opportunity that a Ltd company does; I think you would have declare all your income via PAYE and suck up the higher NI costs.

Agrre with vinnyeh, it sounds exactly like temping, especially the 25 days holidays bit.

Don't let things get over complicated too quickly.

Tell them you'll take the job. Give it a month to see how it pans out and then start worrying about IR35, accountants, sole-trader vs Limited Company etc.

Just one thing, write everything down – "For Your Eyes Only" at this stage. Who said what, how many hours you worked, anything you had to buy. Nothing fancy, just in a notebook – but make it clear and comprehensive. Your accountant will thank you.

I'm in Dronfield. There are four of us in the company and we turn over about £250K per year. Our accounts costs less than £800 every year.

FWIW we don't bother with that minimum wage / dividend palaver. We go with PAYE and avoid nasty surprises 18 months later when all the tax is due. Your mileage may vary – just my personal view. And +1 for the flat rate VAT if you are under the limit.

Keep it simple. Write it down.

Good advice above. Note down everything. Two years later I am still at this stage and not going to try and complicate it (best I don't – I seem to have umbrella companies and LTD companies etc confused from what's above) as my wages and amounts of tax I pay are in-line with what I payed when employed. NI does seem higher though.

I know a couple of people recruited through high street temping agencies where this scenario has happened. As I say, I am sure it is becoming common practise.

Cheers guys, all helpful stuff, especially from DWH.

I'm an Architectural Technologist, so one step down from an Architect really.

Work in my trade is very limited right now so i feel very lucky to have found this job so quickly, i just don't want to jump into somehting that might have implications for me a bit further down the line.

oh, more advice. Set up a savings account or ISA and put each month's tax in it. When Jan 31st comes you should then be covered.

Instead of seeking (potentially) expensive independent advice, run the situation past the status inspector at your local tax office. They'll tell you if the job discription / way of work is employed or self employed. Could also save you an unexpected bill for underpaid tax/NIC liabilities if you go s/e , only to find out you should have been an employee all along.

Some good advice above, but whether it's really self-employment or not is more for them to worry about than you, IMO.

So after a year of working like that you could probably claim to be an employee, but of course you probably won't – and HMRC probably won't come round asking how many hours you do and which desk you sit at either.

DWH – Taking a dividend isn't much of a palaver at all, and I've only had nice surprises when it comes to my tax bills from doing so.

I went self-employed 12 months ago. As long as you are willing and able to take "other " work then no issues with HMRC.
I went on the two (free) courses at the Tax Office and they told me as others have said, write everything down, keep financial records as per the HMRC standard (I have a copy if you want one, it will help with your tax form next year).
You can bill your customer every month for time, expenses, etc.

Can you invoice anyone else for work/services? If you can, you are sorted.

One other thing that I've just thought of – presumably being self employed would affect my credit rating? If i was wanting to re-mortgage in the near future would i have problems?

Become self employed the they can pay you a fee after you invoice them on a month by month basis, they can pay direct into your account, setup a ltd company you will save on tax especially if you earn over £38k.

mk1fan has a really good point here and as someone working in the outdoor industry, where people can hurt themselves, i know the importance of good insurance and understanding your legal responsibilities.
the tax risk and NI risk is greater for the employer than for you, if the taxman decides to treat you as employed rather than self employed. you should still get advice, but this isn't your biggest concern.
the real risk to you is insurance. lets say something you design falls down and someone gets injured. the company gets sued and their insurers in turn look to recover their costs from the contractor who did the work. as you're not employed by the company you are very unlikely to be covered under their insurances.
The safest thing to do is ensure that whatever contract you draw up has a clause in it (checked by your solicitor) stating that they indemnify you against any and all actions, costs in defending actions etc etc.
This may sound a bit heavy handed but your work is so long term that this period of self employment could come back and bite you in ten years time when you've got your yacht, swiss alpine chalet and so on, and you'll end up having to sell the lot…
Chris@CycleActive

Cheers Chris, the PI issue is something that i thought about as well. I'm beginning to think that if i have to get my own PI plus paying for accountants etc plus all the other disadvantages its not going to be worth it based on what they are planning to pay me (£16.50 an hour).

Forgive me if this has already been highlighted; I've scanned a lot of the points raised and didn't see this but I may have overlooked the issue.

The issues raised here need to also be seen from another perspective. The arrangement they want you to undertake means they don't pay your PAYE, don't have to give you holidays, don't give you any employment contract rights etc.

The laws have shifted to prevent employers getting away with hiring people on self employed contract basis and thereby shirk their responsibilities. So the IR35 issue was not just about people avoiding paying tax, it was also about forcing companies to take responsibility for their employees.

So all the 'tests' that have been highlighted here to measure whether you really are self employed or not, they also have an impact on the employer and are there to protect you as well as bring you into the tax fold.

Thats a pretty low wage for the suggestion they put to you.

It's only about the average wage in the UK. If they're so keen for you to go self emplyed, and not accrue any of the benefits of employment, such as ssp, redundancy, and the usual guards against short notice or dismissal at 2 years, they must be a pretty lo-rent outfit. Are you sure that they'll even exist in 2 years? How well do you know them? What's the usual basis of them employing new staff?

It's really not saving them much, in the scheme of things. If you are self employed, the basic rule of thumb 20 years ago was that you take the industry wage offered by the employed, and add 50% to it to cover for your increased costs of being self emplyed.

Rockhopper – Being self employed will not have an adverse effect on your ability to re-mortgage so long as you have a good LTV rate. I have just re-mortgaged (last week), am self employed/company director and got the best available rate out there.

You may want to set up a separate 'business' bank account. If you use your personnel one it can get messy if they call you in (it happened to me when I as a bike courier).

Good luck

John (architectural tec)

The hourly rate they are paying works out at around £29k a year (which is about the same as i was on with my previous company)- the company has been in business for 174 years believe it or not and they currently have over 100 staff!!

I think i'm going to decline their offer to be honest.

Another way is to find somebody who is in the same position and set up a partnership/Ltd company, no IR35 issue then and you can 1/2 your accountant costs.

Both my wife and I contract through the same Ltd company, importantly both fee-changing with separate clients.

I'm an Accountant. I'm pretty sure your employment status would fail the self-employment test. The problem is that lots of prospective 'employers' don't know the rules either and often offer people arrangements which don't have the legal status they think they have. You could point this out to them but then they probably wouldn't employ you. It doesn't matter if you set up a limited company or not, it's not relevant to the test.

Personally I would avoid 'Unbrealla' companies. They're going to take a chunk of your income from you to administer your situation and HMRC really don't like them at all, in fact they're doing their best to outlaw them all together. You'd be better off paying money to a good tax advisor.

I can't advise you what to do. It's work and you need the money. You could take it, keep all your paperwork and go see a qualified tax advisor asap to see if it's worth your while.

Have a look at http://www.hmrc.gov.uk/employment-status/index.htm#1 for more info. Call your local tax office, you'll be surprised how helpful they are.

As Driller said.
I worked alongside a Local Authority for several years. It wasn't until an accident claim came through that I saw how flawed the situation was. Suddenly they washed their hands and moved on. Luckily for me my PI insurance company took care of everything (and, more luckily, I never listened to them when they were telling me I didn't need that cover as their insurance covered me).
I'd take the job, money is needed, but soon would be looking for a professional opinion and help. Seeking other clients would also be a good idea, it might bring even a brighter future.
Good luck!
Kris

Set up a LTD company, register for VAT and immediately opt for the fixed rate payments (its an earner) You will need a decent accountant one that already deals with sole trader companies.

IR35 as stated is a concern of course, but decently worded contracts can help out with this (I can send you one) plus you have no idea how long the contract will run with this company, BUT thats not too much of an issue, it can run and run as long as you make sure you have proof of looking for other work but this was by far your best option this will passify the tax man should they come knocking on your door.

Umbrella companies only make money out of the stupid and lazy, just get yourself sorted out.