I need some advice on the tax and legal sides on behalf of some one. She is currently working as a senior secondary school IT/computing teacher full time in Berkshire. She is going to quit and go contracting working for the US based consumer health division of a major company. It’s 100% remote working. This contracting will be through an intermediary, whom may have an international presence. She wants to go the self-employed route than the company route. She is looking for help/pointers pointers as follows: A local (ideally) small accountant and legal who are happy to engage with her and give all necessary advice and do any prep paper work, if required. She is happy to pay for the services. She has spoken with some local firms, who aren’t keen. A recommendation based on personal experience is what we require. She is aware she would need to register for VAT as her earnings from services are likely to exceed £85K a year She wants to understand GDPR/Privacy as a self-employed. She is not sure if this is applicable as the contract is between the intermediary and her. She will be dealing the employees / contractors who are mostly based in the US and no one in the UK / EU. She will not set up a website. Thanks for the help!

Firstly I’m not a lawyer or accountant but I have contracted remotely. I’m a designer not a teacher but I’d expect the tax regulations to be the same for any business. Working for a foreign country as a contracted employee based in the UK carries a lot of different rules and tax implications compared to contracting for a UK organisation. To make this even more complex different countries have different agreements with the UK regarding how tax is applied. The US department of tax will also be involved in some capacity since it’s a US company paying someone. As I understand it, the way it works with some countries, you get a certificate from the country where the company is based saying you’re not resident in that country and therefore should not pay tax, that then goes to HMRC and you get taxed by them. Some countries also hold a percentage also, so you may end up paying a fee/tax in the company country also. This might not apply to the US. Also it’s worth noting IR35 which I’m not sure if it applies to foreign contracting. It’s a complex ruling but it was brought in so any contractor who is basically an employee in everything but title, has to be taxed in the same way as an employee, and usually this needs to be done through an umbrella company. Again though that might only be UK contracts. I’d guess it would need to be done under a limited company, so that would need to be set up. Ltd companies are treated the same regardless of size so there are a lot of documents etc that need to be filed. Accounts should also be run well and kept up to date. Long story short, get a good accountant and explore every aspect of it. It’s not the most complex thing in the world but it also isn’t as easy as just being an employee. Bear in mind from my experience some small time local style accountants will have not had experience working with foreign contracts/trade. I’d advise finding one who is well versed in doing so. I’d highly recommend not trying to do accounts, it gets very complex and you can get fined for mistakes. Also, and this may not be relevant, but if you’ve got any big life purchases coming up, mortgage amends etc then typically you’ll need two years of accounts before they’ll factor it as income. This isn’t exclusively true but it can be tricky to secure financing as a contractor without extensive accounts. One more thing, you don’t get sick pay or holiday pay. This makes it easy to get to a holiday and think ‘this is costing me X in lost earnings per day’. This is why on the face of it contracting can seem very lucrative but when you factor holiday, sick pay and things like pension contributions, it becomes more balanced. Sorry to sound so negative, it’s just not straightforward and whilst it gets easier, it can be overwhelming initially.

Tax and Legal service - some contacts required

LMSC

Ernie1 Thank you so much.

Oh dear! I looked up. You are right. It’s more complicated when a limited company needs to be set up.

Self-employed is not worth it as non-resident certification needs to be obtained. Ltd company may solve the issue as one can set up a PAYE code.

Will have to check if the intermediary has a local presence as contract will be with them, although the remote work is for the US firm.

The local tax companies (big ones) aren’t keen. Don’t think this can be resolved in a week as the person has the month end deadline to give notice to start work in April. Otherwise, the start date can be only in Aug.

Will talk another accounting firm.

Ernie1

No worries.

Setting up a ltd is actually quite straightforward to do yourself, but then it adds a lot of tax implications that almost certainly need an accountant.

Obviously you’re filing accounts for the company and it’s profits/losses and then for an individual on top. You also need to file accounts even if the company hasn’t traded, as long as it’s active, it needs accounts.

I think your idea to find out if there’s a UK office/intermediary is a great one as it would make it somewhat simpler.

But yes, a good accountant is crucial and I appreciate it’s not easy to find one. I actually only know a lot of this as I recently turned down a lucrative contract for a foreign company based on the fact it was going to be such an administrative headache.

LMSC

Ernie1 was going to be such an administrative headache.

Could you elaborate please? Did it involve the US and what the admin issues are?

How does the GDPR works if between B2B (agent and the US firm’s employees) or between a self-employee and the business (agent and the US firm’s employees)?

Don’t really think these can be sorted in a week to sign a contract and give a notice by 28 Feb.

Thx

Ernie1

LMSC

It wasn’t the US, but not a EU country.

Basically the first issue was that the country in question has a withholding rule where 10% of the income automatically gets withheld by the home country of the company.

I then needed to obtain a certificate of tax residency from the company I was to be working with each month which then goes to HMRC.

The risk was that if there was a delay or difficulty in obtaining anything then it could cost me more tax or worse, fined. My experiences in 20 years of dealing with HR / Payroll is that things don’t move quickly.

The other issue for me was liability insurance. This is probably industry specific but as a design contractor working with very large tech companies, I’m required to have liability insurance to cover an enormous sum, I can’t remember exactly but I think it’s a billion pounds or something.

It was a grey area as to whether I was covered with this inter-country agreement so a risk not worth taking.

Again so much of this is unique to the individual, the industry and the companies involved so I think you’re doing the right thing by seeking an accountant/legal aide.

Sadly it’s just tricky to find a good accountant. One factor I think might be at play here is that some accountants have a flat fee for end-of-year small company accounts, so obviously if it looks like its going to be a lot of work, they might not be interested.

Sorry I can’t be of help on the GDPR thing. That’s a whole other mountain of legislation.

Nightrider_1uk

When I was Contracting I used a company called Matthews&Co based in Swansea. (I am Suffolk based so we did everything by phone and email). He came recommended by another contractor working at the same place. Mike Matthews is very approachable and quite knowledgeable. He set up my limited company for me.

If you are working through an intermediary then your contract is with them not the US company and it’s the intermediary company that pays you. How this works for non domicile companies, i’m not sure.

As Ernie1 stated, IR35 has now taken effect and that is another ball game. If the intermediary is UK based then this contract could well be covered by IR35. A lot of intermediary companies do not like dealing with a number of limited companies and therefore request that you go via an Umbrella company (who they usually have a deal with) or via PAYE.

LMSC

Ernie1 That’s quite a lot of information. Thank you.

Setting up a limited firm perhaps simplify the tax rules between the US and UK as it will be a B2B and is unlikely to require a resident certification. I am not sure the US has a withholding tax rule. Liability is another grey area, while taking Prof Indemnity Insurance is a good back up. I understand the opportunity is more of an agile PM role and I think it is a low-risk.

A lot depends if the intermediary has the UK presence and IR35 applies. If it does, the NI deductions could be double, assuming the intermediary charges the employer NI on the contractor. They shouldn’t as they should be charging the US firm. If they did charge the contractor, the whole proposition is worthless at peak rates (30% NI and 45% tax)

Thanks Nightrider_1uk I will check Matthews&Co.

James Cowper Reading used to take care of the company, which I had years ago, accounts. Perhaps, I will provide the connect.

A chat with the intermediary is the next logical step.

MediumRoastSteam

LMSC I am not sure the US has a withholding tax rule

It does.

Nightrider_1uk

LMSC the NI deductions could be double, assuming the intermediary charges the employer NI on the contractor.

It is usual for the client company to pay a set rate to the intermediately for the work.if the intermediary has a uk presence then IR35 could apply (I think it is up to the client to determine if this is the case. If the contract is deemed out of IR35, then normal Limited company rules apply.

However if IR35 is deemed to apply then its now a whole different ball game. Under IR35. there are two ways to approach the contract

Umbrella Company - The intermediary pays the Umbrella Company an agreed rate. From this rate, the umbrella company will deduct, Employer NI, Apprenticeship Levy, Umbrella Company Margin, Employee’s NI and Income tax and possibly a sum for Holiday Pay (but you can opt out of this)
PAYE. The intermediary acts as the employer, in this case the PAYE rate is usually lower as Employer NI and Apprenticeship Levy have already been deducted out of the rate by the intermediary. You then need to pay Employee NI and Tax.

Of course you could also go Limited company if the Intermediary will allow it but you still would have to pay all of the above. As a small business operating inside IR35 you can claim 5% of the contract worth for running your company

In not sure how you will affected if the intermediary has no uk presence

Ernie1

Slight change of subject but Agile PM is also role that features in my industry (as part of the development of digital products/services).

Is this person experienced in being an Agile PM (Agile certified etc)? If so, they can be quite lucrative roles in the UK, and even more so if transitioning into Product Manager (£100k+ is common), which is a kind of strategic version of a PM who understands metrics and KPIs.

Just in case it turns out to be a headache working for the US contract, there may be a fair few options in the UK. A strong LinkedIn profile and good tech recruiters will help with finding them.

LMSC

MediumRoastSteam It does

I see. That’s a headache. I was thinking it probably isn’t if a B2B! Plan to reach out to my old accounting firm to start with.

Thx all.

Ernie1

Yeah as @MediumRoastSteam says they definitely do.

According to the IRS it’s 30%.

That would mean if you were billing for £100k, you’d only see 70k by the time it got to the UK. Obviously HMRC would write off the 30% paid to the IRS so you’d pay UK tax on 70%.

Assuming (for the sake of argument) that would be PAYE income, a lot of it falls in the upper tax bands, so you’d be taking less home than if it was just 100k of UK income.

Subtract accounting bills, business bank fees, digital accounting costs and holiday pay and it starts to look less attractive.

LMSC

Ernie1 Hmm, unless the 30% is offset partially or fully under the tax treaty, the U.K. contractors lose 30% at source, get assessed on the remaining 70% and (assuming 10% is offset as expenses) get taxed on the 60% as corporations tax / personal tax.

So, what’s left can buy some expensive coffee machine or toilet tissues! 😂

MediumRoastSteam

LMSC - I’m not sure about contractors and all the ins and outs. But tax withholding is not lost money. They withhold the money and assess your tax status. You’ll then need to fill in forms W8, W9 their variations and what nots, and, it’s is my understanding at least that if you are a “resident alien” as they call it, providing you fill in your paperwork correctly, you should receive the withheld money in due course.

Further than this I’m totally out of my depth.

Good luck.

Ernie1

Yeah I’m out of my depth too, but I think in some countries it’s retained, either partially or in full.

PWC have loads of info but as with all of this stuff it’s lengthy complex reading:

https://taxsummaries.pwc.com/united-states/corporate/withholding-taxes

LMSC

Ernie1 Yes, I saw that. It doesn’t mention sale / service proceeds. Thank you mate.

LMSC

Nightrider_1uk As a small business operating inside IR35 you can claim 5% of the contract worth for running your company

Is this more like a tax relief from HMRC or a discount on deductions from the contracted rate from the intermediary ?

Nightrider_1uk

LMSC I’m not 100% sure because in the end decided to close my limited company as trying to work within IR35 with a limited company too much hassle for the cost, However from what I read, it seemed like that intermediary paid the contracted rate to your limited company and you deduct 5% from it.

But then, you have to process the payments for both Employers and Employee NI, Apprenticeship levy and Employee tax. Pension etc You can no longer just pay the employee (ie you) the bare minimum either. In effect you become the employer.

For me, its not just worth the hassle. I am now retired as my work was in Nuclear Decommissioning and none of these contract were near my home so all costs of servicing the contract (travel, accommodation, food etc) had to be bourn from the Net rate after deductions

DavecUK

I remember moving from self employed to working for an American oil company. Their tax is complex and they have good accountants. I had real tax issues in the UK and no proper records, plus tax returns etc.. to do. I also owed a fair bit of tax. I was told to bring in whatever I had e.g. recpts, contracts, P60 etc… and it would be sorted out one way or another.

I placed a shoebox full of stuff with the accountants and never heard a word from the UK tax people after that, and nothing to pay. 😁