Help/Advice for working in early retirement

Gents,
I am looking at early retirement (56) from a large integrated oil company where I am (I know) lucky to have been in a db pension scheme for going on 33 years.
I spoke to my immediate boss a couple of weeks back, and stated my intention to retire and start taking my pension this summer.
He, (predictably, as we never employ enough people...) asked if I was interested in "coming back" a day or 2 per week as a contractor.
My question is: would I be better off starting my own company and, (as I understand it) paying corporation tax and taking directors dividends. OR is it barely worth the hassle?- the alternative being paid by an agency. My pension will put me close to the 40% tax threshold as it is.
I know there are some contractors on the forum, and some accountants.
would there be other benefits to being self employed in my circumstances?
any advice welcomed - I'm not trying to pull any fast ones here-but having supported UKPLC well over the years,figured I want to do the best for me for the last couple of years!
cheers
Goat

Set up your own limited company would be my advice. From my experience the advantages outweigh the downsides. Admittedly I was not starting out contracting back into my old company, and I understand HMRC are hotter on these pseudo contractor arrangements now. A limited company is a helpful distancing tool and having other clients even more so. In general the more that you can appear to be the contractor/consultant that you are the better.
J

Go for it, we had a few people paid off with a year and a half's salary and now they are contractors.
They are earning more in 2 days a week than a full working week.
Only down side is no health / dental care and no pension contributions.
Obviously no job security but is any job safe in the oil industry right now.

Ok, some thoughts......

Having effectively retired in 2013 as a reasonably senior manager (Fire & Rescue Service). Whilst I was still working, the last 2-3 years we took a fair few people back on part time and full time contracts due to their expertise (Fire engineering and Fire Safety mainly). It worked for some and did not work for others - I guess that personal circumstances play a big part in this.

I made a pact with myself that I was not going to do the whole 'returning to work' for the same outfit that I retired from. The dynamics of retirement at the age you are is similar to mine was (I was 51) and there is a raft of emotions and considerations that can often go unconsidered. In no particular order, Self-esteem, self/perceived importance, occupation of time and brain power to name a few. To quote a mate - one day you queue up in the chippy as a boss, the following Friday you are the same as the pensioner with the shopping bag in front of you! Lol.

I do a small amount of H&S stuff for a few mates these days - self employed (and the benefit of saying 'no' if it's not convenient) and we have 2 spaniels that have far more energy than me - bottom line is, be careful in the whole 'coming back' situation as it can be far more than it appears in terms of time, commitment and responsibility. Equally going from being 'busy person' to not being that can be a bit of a crash if not managed.

Enjoy.

Go Ltd. Whilst it may not save you a huge amount of tax per se it will allow you to schedule your remuneration eg low salary (or no salary), some dividends and then can do pension contributions or leave in the ltd and take out later.

If you just bill you will add to your income for that year and have no control on the timings.

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Originally Posted by MB2

Go Ltd. Whilst it may not save you a huge amount of tax per se it will allow you to schedule your remuneration eg low salary (or no salary), some dividends and then can do pension contributions or leave in the ltd and take out later.

If you just bill you will add to your income for that year and have no control on the timings.

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Of course, if it's just about the money..............;)

It may not be your choice as I find O&G companies will only take on limited company status.

It's not as simple as just deciding to work as a limited company or not. If you are working only for your old company you'll almost certainly be caught under IR35 & HMRC do not like those who simply stop being an employee on Friday & go back as a contractor on Monday.

You don't have to operate as a limited company - you could work as a Sole Trader but it's probably not tax-efficient if you have substantial pension income, & as has been said some companies insist on limited companies.

Get accurate advice from an accountant who specialises in this area.

Some useful sources of information:
http://www.contractoruk.com/
http://www.shout99.com/contractors/
https://www.ipse.co.uk/ (download the Guide for Freelancers)

I suspect your insurance costs might be substantial if you work in the O&G industry.
https://www.caunceohara.co.uk/
https://www.qdoscontractor.com/

I too think you are going to have a job convincing HMRC you are self-employed.

1) It would be your only employer
2) Your hours/days of work would be (somewhat) fixed
3) You would be using their infrastructure, PCs, desks, etc, etc.

I see the contractor vs employee bit, so in my not-very-expert view a limited company would seem the best way forward.

Based on the information you've given in this thread and your stated occupation in your profile I would say there is a risk that you'd fall into IR35 if you contracted with your soon-to-be former employer via a PSC. You should take professional advice but I suspect that using an umbrella company would keep your life the most simple and hassle-free.

My credentials by the way - I co-own a business that provides several of the more "aggressive" (tax wise) contracting solutions- which are not for the faint hearted these days, I might add.

I'm an IT contractor and have been for 22 years, always worked through a limited co, my take on it ....

If you're drawing your pension you'll be restricted to £4k per year for future contributions into a pension anyway, given the dividend tax that is now applicable the difference in a small salary + dividends versus PAYE are minimal, limited company means more paperwork and more liability, cost of accountant versus fees for an umbrella aren't that much different (esp. as the fees for the umbrella usual include all the liability insurance you'll need), you can claim more expenses through a limited company assuming you're outside IR35 compared to an umbrella (given you're going back to your old job albeit as a contractor you will be caught by IR35 .... heck, it's one of the first examples on the HMRC guidance notes for IR35!), depands on how long you envisage doing this gig and whether you'll be picking up other contracts too (that will help to get you out of IR35).

But on the face of it if it were me I'd go an umbrella for less hassle / paperwork given it sounds like a day or two a week for probably a limited period.

Go Brolly. The Government are making it harder across the board and as it's your old company I'm guessing there won't be significant staying away/t+s costs.

I went Ltd but for simplicity and transparency would umbrella it given my time over. I have no objection to paying correct taxes and squeezing the absolute last penny out of a contract isn't my driving force though - for me the biggest benefit of contracting is freedom.

If only and day or two and you will only be working for one company, why not start by working through an umbrella agency to see how it goes for you. If your days and customers expand then maybe consider limited co.




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The simplest way is this:

1) Retire

2) Wait to see if your company actually needs you.

3) Go back to work for them on an occasional basis (effectively a zero hours contract).

Why should you have the hassle of setting up a ltd co or working though an agency (who will skim a commission and demand timesheets etc plus "encourage" you to work more hours than you need to.) You are allowed to be drawing a pension and working, ask those guys who do 1 or 2 days a week in B&Q.

The alternative.

Stay on for a further 2 years but ask for a (big) pay rise.

Or:
Retire
Enjoy the time you have left in the knowledge that you have 'done your bit'.

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Originally Posted by Chris_in_the_UK

Of course, if it's just about the money..............;)

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Not always but as he is topping up his pension then I thought the flexibility would make more sense. It does sound like IR35 etc. will make this tricky. We are an ltd any way (not contractors) and whilst the numbers aren't massively different I do see the benefits in being able to structure remuneration and pension contributions to suit cash flow needs and circumstances.

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Originally Posted by Mr Stoat

I'm an IT contractor and have been for 22 years, always worked through a limited co, my take on it ....

If you're drawing your pension you'll be restricted to £4k per year for future contributions into a pension anyway, given the dividend tax that is now applicable the difference in a small salary + dividends versus PAYE are minimal, limited company means more paperwork and more liability, cost of accountant versus fees for an umbrella aren't that much different (esp. as the fees for the umbrella usual include all the liability insurance you'll need), you can claim more expenses through a limited company assuming you're outside IR35 compared to an umbrella (given you're going back to your old job albeit as a contractor you will be caught by IR35 .... heck, it's one of the first examples on the HMRC guidance notes for IR35!), depands on how long you envisage doing this gig and whether you'll be picking up other contracts too (that will help to get you out of IR35).

But on the face of it if it were me I'd go an umbrella for less hassle / paperwork given it sounds like a day or two a week for probably a limited period.

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I am not sure - as if is an LTD they can make contributions on your behalf up to 40k PA - would probably need to be a new scheme however and up to age 75.

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Originally Posted by aldfort

The simplest way is this:

1) Retire

2) Wait to see if your company actually needs you.

3) Go back to work for them on an occasional basis (effectively a zero hours contract).

Why should you have the hassle of setting up a ltd co or working though an agency (who will skim a commission and demand timesheets etc plus "encourage" you to work more hours than you need to.) You are allowed to be drawing a pension and working, ask those guys who do 1 or 2 days a week in B&Q.

The alternative.

Stay on for a further 2 years but ask for a (big) pay rise.

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Umbrellas tend to charge a fixed fee for each week that you've done work, it's not done on commission as this is an umbrella service and not an agency (hence they don't care how many hours you do either - makes no difference to the umbrella). There won't be any time sheets either - all the umbrella needs to know is how many days you're worked so they can invoice the company ... that will take all of 2 minutes a week :eagerness:

The downside of the zero hours contract is you'd still be an employee of the company and therefore they have to account for employers NI, holiday and sick pay, pension auto enrollment etc - so it would be depend on what stance the company took.

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Originally Posted by MB2

I am not sure - as if is an LTD they can make contributions on your behalf up to 40k PA - would probably need to be a new scheme however and up to age 75.

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I seem to remember once you're taking any form of pension benefit your (up to) 40k allowance drops to 4k (used to be 10k) ... this is to stop people churning their pension money in a drawdown scheme whereby they take a pension payment and then immediately invest back into a pension and gain the 20% uplift (or 40% if a higher rate taxpayer).

If you breach the 4k limit then the contributions are taxed at 45% IIRC

It might be different if it's a company contribution but doubt it, happy to be corrected though.

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Originally Posted by Mr Stoat

I seem to remember once you're taking any form of pension benefit your (up to) 40k allowance drops to 4k (used to be 10k) ... this is to stop people churning their pension money in a drawdown scheme whereby they take a pension payment and then immediately invest back into a pension and gain the 20% uplift (or 40% if a higher rate taxpayer).

If you breach the 4k limit then the contributions are taxed at 45% IIRC

It might be different if it's a company contribution but doubt it, happy to be corrected though.

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You would have to check with an IFA, but I am certain you can start a new scheme and contribute 40k whilst drawing a pension as a fellow director has done just that here and it was approved (they were not allowed catch up contributions on previous years however). I expect it is because it is an "executive" pension plan and therefore has different rules such as you are not capped to your income level.