Is it better if i work on employment contract or invoice my employer ?

Question

i could start my 1-person company and issue invoices to my employer, rather then being direct employee. assuming our contract gives me similar rights as i was an employee (holidays entitlement, notice period) will i be better off in terms of tax and social insurance i need to pay? i heared i can get higher net salary this way.... what are cons and pros ? would u do that ?

Answer 1

If you have your own company it will need to start meeting expenses that your employer now pays (insurances etc; 11% employer's NI and maybe pension contributions), and it can't have the protection of employment legislation that you now have (redundancy, notice periods, paid holidays etc) .  You will also need to file a corporation tax return, maybe quarterly VAT returns, certainly PAYE returns, prepare annual accounts and comply with company law generally.

The main advantage is that any savings you make can be after paying corporation tax rather than personal income tax, but what this is worth depends on what your annual income is.

You might not, however, have much choice. A lot has been written about "IR35" which is anti-avoidance legislation to stop employees avoiding tax by operating through their 1-man company.  Start by having a look at this: http://www.hmrc.gov.uk/ir35/  and the links from it.