Dear Contractor Doctor,
I work for a telecoms company as a permanent employee and am on three months
notice. There is an opportunity for my permanent role to be replaced in the
Finance department with a contract role in the IS department.
Do you know if there is any employment/tax legislation which mandates that I
must leave the company for a certain period before I can return as a
contractor.
Thanks for your help.
Thanks
[Name supplied]
Contractor Doctor says:
There are no laws against this at all. However, there might be internal policy
which states that an employee who leaves cannot come back for a set period.
Also, if you recently started as a permie as the company and got the work via
an agent then there might be a fee for the company to pay the agent if you
become a contractor there. This would be fairly rare though.
This type of activity where the employee leaves the company on
a Friday as a permanent employee and returns on the Monday as a contractor
was referred to as the 'Friday to Monday' situation when IR35 was first
proposed in 1999. It was this type of activity that it was originally described
as being intended to prevent.
The Friday to Monday concept is attractive for employers and employees, since
the employers saves money since less Employers NI is paid. They also have an
advantage of a flexible work force. The Employee (now a contractor) loses many
employment rights since they work through a limited company, but they also get
more money in their pocket since their taxes reduce due to lower NI payments
and the advantages of operating through a limited company structure.
But now, with the IR35 legislation, if you are caught you still pay a large
amount of taxes, since the contractor pays all the employers NI that would have
been paid by the company. So HMRC still get their money.
Suffice to say, it is worth ensuring you do not get caught by IR35.
For cases where the employee continues to do the same job as when they were
permanent this could prove very difficult.
Good luck contracting!
Contractor Doctor
Published: Monday, February 13, 2006