Contracting in Aus for a UK company, temporarily

[Gothnet]

Hi there,

Just moved (back) to WA and I'm trying to figure out how best to approach to an employment finance issue, (so I hope I'm posting in the right section!)

I worked as a contractor in the UK with my own company, for about 10 years. My last client, who I worked with for a while this year and last year, would like to continue the relationship and may want to employ me when they expand into Australia sometime next year. But until that happens, does anyone know the best way to continue to work for them, bill them in the UK and take the income here in Australia, while complying with all the Australian tax rules?

I'm thinking that engaging an umbrella company might be the easiest way - that way I'm sort-of employed here in Australia, the UK company pays the Australian umbrella, tax and fees are deducted at that point, and I get paid quite normally.

Is this a workable plan? Does anyone know any good umbrella companies?

Or should I be getting an ABN and invoicing directly, then working out the tax myself/getting an accountant? Is it worth the hassle for what might only be six months?

I've been a contractor in the UK for a decade, but am quite unsure of the rules here!

 

Cheers!

[Marisawright]

Getting an ABN is very easy and you may find you end up working as a contractor here too, so I’d say you may as well. The tax is not difficult provided you don’t need to charge GST

[rammygirl]

As above, even registering for GST is easy all can be done on line. It will be worth getting a tax accountant to do your returns, especially to begin with as the system is different to the Uk. How they pay May be an issue though pounds or  dollars into an Aus account, also factoring in exchange rates.

[Marisawright]

2 hours ago, rammygirl said:

As above, even registering for GST is easy all can be done on line.

Registering is easy, but doing the quarterly returns is a pain in the butt so best avoided if it's not required.  

[Gothnet]

Interesting, thanks. So it sounds like ABN + accountant.

It’s difficult to know if I should register for GST, as I don’t know how long the contracting phase will carry on. If it’s more than a few months then it will break the threshold.

Also from what I can tell I may have to register for GST but as I would be selling the service overseas, not actually have to charge it?

And this would definitely come under PSI so I need to figure out how to pay myself too.

I assume, like the UK, getting a separate company bank account is the done thing?

Does anyone know of a specific contractor forum for Aus? Or other resource that would be useful?

Thanks!

[rammygirl]

There is loads of info online and also apps and spreadsheets. GST returns aren’t difficult if you keep records and don’t have many transactions. Hubby freelances and manages it easily. 

[Ken]

If you expect your turnover to exceed $75,000 per annum then you have to be registered for GST. If your turnover is less than that but you have a lot of expenses that have GST on them but most of your Sales do not (e.g. your customers are in the UK so they are export sales) then it can be worth registering even if your turnover is below $75,000.

[Ken]

On 22/10/2021 at 15:05, Gothnet said:

Interesting, thanks. So it sounds like ABN + accountant.

It’s difficult to know if I should register for GST, as I don’t know how long the contracting phase will carry on. If it’s more than a few months then it will break the threshold.

Also from what I can tell I may have to register for GST but as I would be selling the service overseas, not actually have to charge it?

And this would definitely come under PSI so I need to figure out how to pay myself too.

I assume, like the UK, getting a separate company bank account is the done thing?

Does anyone know of a specific contractor forum for Aus? Or other resource that would be useful?

Thanks!

Yes, export sales are included in the threshold.

How to pay yourself only comes into play if you are going to create a company and then it's really about how the company pays you. If you are self-employed you don't pay yourself as your customers pay you - but I would recommend a separate bank account for the business - that way you don't need to give bank statements to your accountant that are full of your personal transactions (note that it does take some discipline only to make business payments from the business account and not to make any business payments from your personal account). The only impact of PSI is that the expenses you can claim are restricted (to those that an employee could claim) if you only have (or mostly have) just one customer.

If you do take the company route then the company is a separate legal entity and so needs it's own bank account and you need to pay yourself and PSI becomes much more of an issue as does Schedule 7A (loans made to Directors).

[Gothnet]

Hi Ken,

I've run a company in the UK for the best part of ten years, I'm well aware of the need to keep the finances separate!

This confuses me though - 

On 23/10/2021 at 15:07, Ken said:

How to pay yourself only comes into play if you are going to create a company and then it's really about how the company pays you. If you are self-employed you don't pay yourself as your customers pay you

In the UK there are virtually zero 'self employed' computer contractors. You either run a Ltd company or you work through an umbrella company, meaning you have a separate legal entity (your own or someone else's) that receives the money, pays the right taxes, then pays you. Are there significant numbers of professional contractors who are 'sole traders' here in Australia?

[Gothnet]

-- later --

OK I've done some more reading and it seems like setting up a company is not anecessary in order to get and ABN or get GST registration, or the various insurances or whatever else. I think this is what I was missing, that it's actually more 'normal' to run as an ABN/GST-registered sole trader here.

[NickyNook]

I'm now retired but was an IT contractor for many years.

Initially I had my own company but once the ATO started cracking down on all the traditional advantages (ie lurks like income splitting, paying lower-rate company tax on 'profits' etc ) it no longer became viable. The paperwork and costs were just too onerous for zero benefit so I wound up my company and thereafter worked via a contractor umbrella company. I was not alone in doing this - most IT contractors I knew at the time did the same.

Unless it's changed enormously in the las 10 years, I'd say that most IT contractors work via umbrella companies and are not Sole Traders. 

[Gothnet]

6 minutes ago, NickyNook said:

I'd say that most IT contractors work via umbrella companies and are not Sole Traders.  

 

OK interesting ...

Know any good ones?

[NickyNook]

Sadly not now. The one I used was called CMS Global, based in Melbourne but they don't seem to exist any more.

Probably got taken over by some other company.

[Ken]

Umbrella companies are definitely not as popular in Australia as they are in the UK. There aren't any tax advantages, and if you think of Super as a tax rather an investment (I know many people who do however inaccurate that is) then it's a positive disadvantage because you are forced to put 1/11th of your income (after deduction of the umbrella companies fees) into Super rather than being able to invest where you choose.

Yes they'll save you some of the paperwork (not all of it because they still need you to tell them who to bill and how much) but they charge you for the privilege and then some.

Some of the suppliers dropped out of the market due to the difficulties of complying with ever tightening Fairwork regulations - what happens with long service leave and sick leave for example to someone who is contracting but has been with the Umbrella company long enough for Fairwork to consider a permanent employee? Logically the contractor has to pay as well as being the one that receives it but Fairwork of course don't approve of employers demanding money from employees to pay their entitlements. The suppliers that are left are not the cheapest - almost certainly because they're having to pay some sort of insurance to cover this.

[Gothnet]

Thanks for that. After talking to a couple of IT folks I know locally in Perth as well, I've decided to apply for an ABN and register for GST, and use PwC's 'AirTax' app to keep me legal. I'm going to open a business account with Wise which will allow me to receive payments in GBP, to a UK account number and sort code (my customer is currently UK based) and transfer the money to AUD with minimum fuss and fees.

Right, thanks for your input folks, hopefully you'll not be getting a thread about how I screwed up and the ATO are after me six months down the line

(I have an existing super account with Australian Super, I'll see about chucking 10% in there. I'm definitely at a time in life when I view it as an investment!)

Edited October 25, 2021 by Gothnet

[Ken]

1 hour ago, Gothnet said:

Thanks for that. After talking to a couple of IT folks I know locally in Perth as well, I've decided to apply for an ABN and register for GST, and use PwC's 'AirTax' app to keep me legal. I'm going to open a business account with Wise which will allow me to receive payments in GBP, to a UK account number and sort code (my customer is currently UK based) and transfer the money to AUD with minimum fuss and fees.

Right, thanks for your input folks, hopefully you'll not be getting a thread about how I screwed up and the ATO are after me six months down the line

(I have an existing super account with Australian Super, I'll see about chucking 10% in there. I'm definitely at a time in life when I view it as an investment!)

If you are going to be self-employed and "chucking" in to Super do bear in mind that there are different ways of making voluntary contributions. If you just pay in, the money isn't taxed when you pay it it but you'll have had to pay tax on the income you have needed to earn to chuck it in. You can however tell your Super fund that you are going to claim it as a tax deduction. That reduces the amount of tax you have to pay but your Super fund will then have to deduct 15%* from your contribution for tax but that's almost certainly less than the value of tax deduction you'll get.

*Can be higher for those on high incomes and thresholds apply to how much you can contribute per year and in total.

Edited October 25, 2021 by Ken

[Gothnet]

Thanks, I hope to be on a reasonably high income, but it's always worth keeping these things in mind. I'll take a look at the super website as well and figure out what's what there.