Self employed or stay as employee

[Amarach1975]

We moved back from the Uk three months ago. My husband handed in his notice. The company wanted to keep him, and they came to an agreement whereby he'd work from home and go over once a month.

The company is question is in administration. It's been chaos over the last few months with employees not getting paid on time. However it has been taken over by the former silent partner who has poured more money into it, and he plans to take over the MD role.
I'm a higher rate taxpayer. DH wouldn't be.

The new MD has suggested it would be easier if DH became a contractor.
I think it's worth investigating. I know there would be some set up costs, but the tax savings would be significant for us.
The main risks are :
- he wouldn't get redundancy if the company folded. However he'd only get the bare minimum anyway,and he is only there three years as an employee.
- He wouldn't get job seekers if the company folded. However, given we actually have decent savings for the first time in our lives (we are renting and saving the money from the sale of the UK house until we buy here), i think that could be an issue if he were to try to claim jobseekers.
- As a contractor, there is a higher risk of not getting paid, or paid late. However the cashflow situation does seem to have eased. Also, in that company even being an employee doesn't guarantee you'll be paid. At the moment, he's pretty much working to pay the creche fees (we have two kids), so we're not majorly up s8*t creek if he does lose his job as we're dependent on my take home for all the day to day expenses. That said, him being in work would help when it comes to mortgage applications.

Any advice welcome. thanks in advance.

 

[T McGibney]

First of all, Revenue won't tolerate an ex-employee setting themselves up as a sole trader and contracting to their former employer. Once they become aware of the arrangement, they will allege that it is a disguised employment and force the company to pay PAYE/PRSI on his earnings, plus penalties and interest.

To have any chance of seeing this through, he will need to form a limited company and have the company contract to his former employer.

And even at that, he will need to take extreme care in making his arrangements as Revenue have only this week announced that they are taking particular interest in the tax affairs of contractors who contract to a single company or group. See this for more: http://mcgibney.ie/2013/01/25/contractor-companies-face-revenue-probe/

 

[Amarach1975]

Thanks T McGibney. I get what you're saying. In this instance though, as it's a UK company with no presence in Ireland, it's the HMRC who are getting the taxes and social insurance. My understanding is that we'll have to do a true up with the RC and if DH would have paid more tax in Ireland,he pays the difference, but if it transpires he would have paid less, then he doesn't get a refund.
Also, there has been a fundamental shift in his conditions. He is working from home, he is doing less hours. I can see why the company want it for a few reasons :
- realistically, long term they'd like someone on site, which is understandable. But it's quite specialised, so medium term, I can see them hiring someone to do some of the work, and then H gradually withdraws from the equation.
- H would advertise himself as a contractor for other companies. Like that though, given the environment we're in and the fact he has no contacts, the odds of him being besieged with work requests is probably remote.
- It would make it easier on us to negotiate an hourly rate. One of our children has severe developmental delay, and we're in the process of getting him assessed. So being a contractor would help a bit for the appointments, as at the moment he's always having to ring and explain and make the hours up.
-I suspect, and this is more a hunch, that the set up is causing some resentment in the UK place, as it's probably perceived he's on a right cushy number. So I think making his status clear once and for all would probably help morale there.

 

[mandelbrot]

Thanks T McGibney. I get what you're saying. In this instance though, as it's a UK company with no presence in Ireland, it's the HMRC who are getting the taxes and social insurance.

Just on this point, if Revenue believe he is an employee, performing the duties of his employment here in Ireland, then the part of his salary/income that relates to the work he does here, is taxable under the PAYE system here.

See Para. 2.3 of this
[broken link removed]

 

[T McGibney]

Hi Amarach1975

Thanks for the update. I think its fair to say that this isn't merely a "cunning plan" wheeze for the company to avoid paying Employer PRSI, holiday pay etc. That said, Mandelbrot's point is relevant, as its likely that the company should have already registered as an employer here and be operating Irish, rather than UK, PAYE and PRSI on his pay.

Based on what you have said, it may well be feasible for him to form a limited company and contract to his former employer and possibly other companies.

That said, the bottom line is that his situation is rather complicated, both in terms of tax and also his legal entitlements and responsibilities, so he will probably need proper professional advice in both respects before he proceeds with his plans.

 

[Amarach1975]

Thanks again for the replies. In a way it would be handy if the correct approach is for the company to register for PAYE/PRSI as I know they definitely won't want that hassle. I'm keen to go the contracting route now.