Setting up as a company/consultant

[nagapie]

Last year I left a job I'd been at for 17 years. Unfortunately they've not been able to replace me so I've been going in to do some freelance/consultancy work or whatever you call it.
However apparently they need me to be set up as a company so they can pay me.

I would be grateful for some links but also brief bullet point type responses on how to do this. Especially about how not to get fined for taxes. I am unlikely to do more than 15hrs per year for them (hopefully) but I have no knowledge of how to do things like this as I've always had a job so very institutionalised as a wage slave.

 

[Silas Loom]

At fifteen hours per year you are much better off as a sole trader than going to the trouble and expense of setting up a company and preparing accounts.

Do you have any opportunity at all to push back on the requirement that you be set up as a company?

As a sole trader, you just do a self assessment tax return. It’s doable without professional advice, especially at this very low level.

 

[nagapie]

At fifteen hours per year you are much better off as a sole trader than going to the trouble and expense of setting up a company and preparing accounts.

Do you have any opportunity at all to push back on the requirement that you be set up as a company?

I think sole trader would be fine, it's probably my incorrect use of the word company. They just want a legal way to pay me without putting me on their payroll. So what do I need to do to be a sole trader? Tia.

 

[Silas Loom]

I think sole trader would be fine, it's probably my incorrect use of the word company. They just want a legal way to pay me without putting me on their payroll. So what do I need to do to be a sole trader? Tia.

You just inform HMRC and then they start asking you to do self assessment tax returns. As Buddy Bradley and his daughter will tell you, it’s very important to keep an eye out for emails and notifications.

You won’t need to do a self assessment tax return until the January following the end of the tax year, so it would normally be important to have some cash saved. Maybe less of an issue at this level.

Is the fifteen hours per year going to exceed £1000 in fees, though? If so, you may be below the threshold for even needing to declare it. Depends on whether you will have other income.

Tax considerations aside, all you need to do is submit written invoices so that they can pay you. Any format you like is fine as long as they have the word “invoice”, the date, the services provided, the cost, and an invoice number.

 

[what]

I know this Amy sound a bit strange but have you considered if a zero hours contract would work for you and them.
Where I work a lot of people who retire early go on these. If there's work available and they want it they get paid via normal payroll but just for hours worked.
No idea if it affects you working elsewhere or how it works in detail.

 

[nagapie]

You just inform HMRC and then they start asking you to do self assessment tax returns. As Buddy Bradley and his daughter will tell you, it’s very important to keep an eye out for emails and notifications.

You won’t need to do a self assessment tax return until the January following the end of the tax year, so it would normally be important to have some cash saved. Maybe less of an issue at this level.

Is the fifteen hours per year going to exceed £1000 in fees, though? If so, tou may be below the threshold for even needing to declare it.

I think it will come out under £1000, especially as I've given them mates rates. As long as they don't keep asking me for more, but I'm unlikely to be able to give more anyway as I have a new job.

 

[nagapie]

I know this Amy sound a bit strange but have you considered if a zero hours contract would work for you and them.
Where I work a lot of people who retire early go on these. If there's work available and they want it they get paid via normal payroll but just for hours worked.
No idea if it affects you working elsewhere or how it works in detail.

That sounds good but it wasn't offered so I am wondering if it's more bother for them. I think they want me to be what Silas Loom mentioned, a sole trader.

 

[Silas Loom]

I think it will come out under £1000, especially as I've given them mates rates. As long as they don't keep asking me for more, but I'm unlikely to be able to give more anyway as I have a new job.

Okay, then the £1000 (or however much it is) will definitely be taxable and unfortunately you’ll need to be self assessed on the extra income while being PAYE on your other job. This may mean you’ll pay emergency tax via your payroll - Elpenor is your guy to advise on what might be done to avoid this, if anything can be done.

 

[Silas Loom]

All this hassle definitely needs to be baked into your hourly rate!

 

[shakespearegirl]

Are they a big organisation? Post IRbloody35 lots of big orgs are insisting that all consultants/freelancers are LTD company and have liability insurance

 

[JimW]

All this hassle definitely needs to be baked into your hourly rate!

I had to do that here when I found local publishers would always extract tax at the emergency rate before paying me and I was in no position to claim it back; there's a personal gains tax due on fees paid to an individual service provider like me, so I just upped my rate to include that and they all swallowed it.

 

[Silas Loom]

If in retrospect you don’t think that the mates rates you have offered are worth having to submit self assessment returns for three years running, I wonder whether you could be cheeky and ask to be paid a bonus in your last paycheck to cover fifteen hours worth of call off services delivered ad hoc after you have left.

Or even get your manager to hand over a cash sum and expense it!

They probably know that you are a good egg and can be trusted with a prepaid call off budget. But there’s always some chance that they won’t use it.

 

[nagapie]

Are they a big organisation? Post IRbloody35 lots of big orgs are insisting that all consultants/freelancers are LTD company and have liability insurance

It's a school.

 

[nagapie]

If in retrospect you don’t think that the mates rates you have offered are worth having to submit self assessment returns for three years running, I wonder whether you could be cheeky and ask to be paid a bonus in your last paycheck to cover fifteen hours worth of call off services delivered ad hoc after you have left.

Or even get your manager to hand over a cash sum and expense it!

They probably know that you are a good egg and can be trusted with a prepaid call off budget. But there’s always some chance that they won’t use it.

I've had my last paycheck.

I am tempted to give it to them free, on the proviso that they find someone else to do the work next year!

 

[Puddy_Tat]

some disconnected thoughts (and partly copypasta from another thread a year or two back)

this page on government website may be worth a look for the tax side of things.

i had a brief foray in to self employment alongside part time employed work a few years back, and while it means you get in to the realms of tax returns, they didn't ask to see a lot of paperwork etc (my self employed income was fairly small and they probably didn't think it was worth it. i'm not sure it was worth it from where i was sitting, but it looked better than 'unemployed'...)

without knowing what you do, and at the risk of stating the obvious -

your taxable income from self employed work is the net income / profit, not the gross income. Although you'll need to keep records of costs. Where it's buy stuff for X amount, sell it for Y amount, that's relatively simple. Costs like business travel, stationery, advertising etc are all legitimate costs to deduct. Will you need to provide any computer hardware / software for whatever you do?

if you're going to do stuff as a contractor not an employee, you should probably be charging more than an hourly wage would be - you're taking on responsibility for holiday pay / sick pay / NI contributions / the time it will take to do accounts and bill them, in addition to the hours you're actually working. when i worked in the consultancy field (albeit as a permanent full time employee of consultancy company) what they billed the client was in general about 2x what they paid me.

will you be doing whatever it is from home? May be worth reading small print on mortgage / tenancy agreement to make sure you can - also could have implications on house insurance and council tax in a way that (employed) work from home doesn't - but if you do enough from home then you might be able to claim some of your household bills as business expenses.

And do you need to consider taking out any sort of public liability insurance, or professional indemnity insurance? if you're an employee and you balls something up, you run the risk of getting sacked. if you're self employed and balls something up, you run the risk of getting sued.

setting up as a company is way beyond me.

i'd agree that it may be worth asking if they would consider you doing it as a zero hours contract (or contracted for something like one day a year with the option to do more hours) employee rather than get in to all this faffing about if it's only going to be a couple of days' work. depends how much you want to do it / how much you'll make from it / how much other self employed work you might do.

i have heard of the concept of doing self employed work via an 'umbrella company' but not sure how this works or if it might work for you.

 

[Silas Loom]

It's a school.

Oh dear. They probably don’t really know what to do either.

I've had my last paycheck.

I am tempted to give it to them free, on the proviso that they find someone else to do the work next year!

Or just tell them in the nicest way you can that it’s their problem and you can’t be bothered?

 

[nagapie]

Oh dear. They probably don’t really know what to do either.



Or just tell them in the nicest way you can that it’s their problem and you can’t be bothered?

I think they do know what to do but it's all on me.

I can't tell them that, not this year, but I can tell them I'm not available for next year.

 

[Silas Loom]

I think they do know what to do but it's all on me.

I can't tell them that, not this year, but I can tell them I'm not available for next year.

Maybe you can also reconsider your mate’s rates offer if this thread has alerted you to obligations and downsides of which you weren’t previously aware?

 

[shakespearegirl]

I think they do know what to do but it's all on me.

I can't tell them that, not this year, but I can tell them I'm not available for next year.

If they need you to do the work and don’t have any other option, I’d tell them they need to find a way to pay you PAYE. Setting up a Co is ridiculous for that amount of income and even going self employed will involve time and admin

 

[nottsgirl]

I used to do some self employed work, writing an invoice isn’t that much hassle and doing a tax return takes about an hour if it’s simple. Setting up as a sole trader takes about an hour. I stopped doing it and told HMRC and that was that.

 

[nagapie]

I used to do some self employed work, writing an invoice isn’t that much hassle and doing a tax return takes about an hour if it’s simple. Setting up as a sole trader takes about an hour. I stopped doing it and told HMRC and that was that.

I don't mind as long as it doesn't affect my pay/tax for my primary job.

 

[nottsgirl]

I don't mind as long as it doesn't affect my pay/tax for my primary job.

It won’t, you just have to say how much you earned PAYE.

 

[not henry]

I set up a company for myself a week or so ago. I did it all online and the cost was £50. Since then I have had loads of info through the post regarding tax and etc. You are led through the process and the cost is only £50

 

[Silas Loom]

It won’t, you just have to say how much you earned PAYE.

It might, because of emergency tax, as she can’t state on onboarding that her PAYE job is her sole employment.

This is basically a payroll problem though and we’ve done a candyman candyman candyman on Urban’s payroll geek.

And emergency tax comes out in the wash eventually, it just takes a while.

 

[nottsgirl]

It might, because of emergency tax, as she can’t state on onboarding that her PAYE job is her sole employment.

Only or main job surely? She should be fine?

 

[Puddy_Tat]

just a thought - if you have a 'primary job' as well, may also be worth checking the contract for that job to see what the position is with doing other work.

probably not an issue, but some contracts have a requirement to tell them / ask permission if you're doing other work, others are OK as long as it doesn't interfere with your ability to do the job (would have thought a couple of days a year wouldn't) or create any conflict of interest (e.g. working for a competitor / current or potential supplier / customer)

as for PAYE, i'm a bit fuzzy about it. I know I've had two (part time) PAYE jobs at the same time and had combined PAYE and self employment. I know in one case it got cocked up and I was paying emergency tax rate on a job I shouldn't have been. At the risk of stating the bloody obvious, the personal allowance (tax free amount) is fixed, you don't get that personal allowance in each job. you can (if i remember right) opt to have all the personal allowance on one job and pay tax on everything you earn in the other, or split it between the two, but not sure how you go about that.

And with self employed earnings, it may be a case of declaring them separately and either giving the tax people a cheque, or they will adjust your tax code on the PAYE job to gather what you owe them. It should all come out right in the end, but sometimes takes a while to get there.

 

[shakespearegirl]

I used to do some self employed work, writing an invoice isn’t that much hassle and doing a tax return takes about an hour if it’s simple. Setting up as a sole trader takes about an hour. I stopped doing it and told HMRC and that was that.

But still doing two hours admin for a fifteen hour mates rates job

 

[Hollis]

It's about proving your employment status and that you're not an employee. As an employer you often/usually have to 'fiddle' it to get what you want.

Check employment status for tax

Setting up as a sole trader is pretty easy, and you just have to pretend (in your head) that your intention is to provide educational services to a number of clients.

Become a sole trader

Don't think you need to register anything if you're earning less than £1k.

Agree with others...I would make it their problem, unless they're insistent their not going to do it on payroll.

 

[nagapie]

But still doing two hours admin for a fifteen hour mates rates job

True.
But on the plus side it is forcing me to keep up some skills and qualifications I don't need in my new job which I almost certainly would have let lapse.

 

[nottsgirl]

There is a trading allowance of £1000 for self employment where you don’t have to declare it so you might be ok.