Question over consultancy & HMRC

[cobbler1980]

Hopefully I've picked the right forum for this one. Here goes...

I will soon be stepping down from my role as a director to become a consultant for the same company. I wish to come off PAYE and invoice the company directly as a sole trader. However, I may have hit a bit of a snag.

I want to retain my 5% shares (B shares). As I understand it, if I remain a director (albeit become a non-exec), and wish to work on a consultancy basis, HMRC would prefer me to invoice via a limited company, thus making the sole trader not an option. Is this correct?

The options I have are to either remain on PAYE (not preferred from my perspective), set up a LTD company (and expose myself to potential IR35 problems and associated costs) or take my shares with me as a non-director. I'm not sure if the latter is possible, but I guess it would be the ideal solution.

As you can see - I'm a little flummoxed and, before I take some professional advice, thought I'd ask you lovely people on here for your thoughts

 

[Newchodge]

You are confusing several different issues. Being a director and being a shareholder are different things.

What 'consultancy' work will you be undertaking for this ltd company, and how will it differ from the work you did as an employee?

If the purpose of the changes is to avoid tax, you may well have a problem.

 

[cobbler1980]

The work will be varied but will incorporate elements of my existing role. The changes are not intended to avoid tax and indeed the very reason I'm asking these questions is to ensure I abide correctly by HMRC I have already started a sole trading business which requires more of my time, and the ltd company is going through significant structural changes which will enable me to become a consultant.

I do understand the difference between shareholders and directors, and it may well be that I've answered my own question above; i.e. if I am removed as a director and employee but retain my shares, I am able to invoice for my work as a non-employee as a sole trader.

I'm guessing it perhaps ain't as simple as that, though... If the best option is to remain on PAYE and simply reduce my hours, then clearly I need to give that serious thought.

 

[Alan]

Certainly safer from a HMRC compliance perspective to remain PAYE, and just be on a variable hours (zero hours) contract, get paid for the hours worked through the payroll.

Being self employed, or a limited company may be (marginally) more tax efficient (on NI efficient) if you really can show you are not acting as an employee.

 

[Newchodge]

We'll see what George says tomorrow, but I get the impression that HMRC is cracking down on self employed/limited company employees, perhaps to distract attention from the fact they are failing to pursue huge scale tax evaders.

 

[john1989]

We'll see what George says tomorrow, but I get the impression that HMRC is cracking down on self employed/limited company employees, perhaps to distract attention from the fact they are failing to pursue huge scale tax evaders.

Funny how they said they would clamp down on tax avoidance during the Starbucks, Vodafone , Google, etc media campaign. They stuck to their word, but it's small business again that is penalised. Sigh.

 

[Mark T Jones]

The conflict that I see in government thinking is that they are obsessed with creating micro businesses whilst clamping down on 'personal service' companies

It will be interesting to hear what George has to say. Though is unlikely to be more than tweaking. Ultimately their stance will depend on freedom, resource and location will you be undertake Jt other work? Will you be using your own resources? To what extent will they dictate your hours?

 

[cobbler1980]

I'll be home based with occasional visits to the office during the week, but will be using my own resources and dictating my hours. I'll also be working on other projects which are completely unrelated to the ltd company.

I've heard a solid contract between both parties clearly demonstrating the above should help...

It also strikes me that I'd be better off not being a non-exec director and simply retaining my shares in the company.

 

[David Griffiths]

If you are a director, then you must be paid through PAYE. If you are a director and get paid through your personal company, then you are caught by IR35 as far as that income is concerned.

If you aren't a director then the usual criteria apply to deciding whether you are employed or self employed.

Subject to anything announced by the Chancellor today, of course. I won't join in the speculation.