From Sole Trader to Employee UK/AU - is it a trap?

[CrossBreed]

Hi All,

I find myself in an unusual situation where the (UK based) company I bill under my sole trading business (in Australia) says they’d like to change our arrangement and make me an employee in their AU office. What’s bizarre is that they’d like to backdate my employment and pay super/pension for those years.
I used to work for them as an employee in the UK. When I moved to Aus, I started billing them as a sole trader.

My accountant have not heard of such practices before and suggested that backdating employment years back will bring huge penalties and interest charges from the AU tax dept. and my tax returns would also have to be reversed not mentioning the tax corrections the UK company would have to make in the UK.

Is it possible the UK employer is trying to ‘erase’ the arrangement due to some legalities they were not aware of before?
I’m trying to figure out what I’m getting myself into and prep for contract negotiations.

Any advice will be greatly appreciated.

Many thanks,
CrossBreed

[atticus]

Welcome.

I think you will need Australian law advice on this one.

[PallasAthena]

Put to one side for a moment the complication of you being in Australia and look at what your employment status would be if you were in the UK supplying the UK-based company with whatever it is you supply to them.

HMRC have an online tool that assesses whether the way you work would qualify under UK law as employment or self employment, and whether billing as a sole trader via a personal company should be treated by the 'employer' as employment under IR35 rules.

It's known as the HMRC CEST checker

https://www.gov.uk/guidance/check-em...status-for-tax

Put your details into it (it's anonymous, HMRC don't know who you are) and let us know what it says your employment status would be.

[CrossBreed]

Pallasathena - many thanks for the link. The result was ‘determination cannot be made’. However in Australia it’d be pretty clear I should be an employee rather than a contractor considering I used the company email address, their laptop, etc.

AI is suggesting a sham contract situation and potential tax penalties for the client by mischaracterising the relationship. This would explain why they’re so keen to backdate the employment.

I’ll keep digging.

[ULA]

From the UK employer perspective if a worker is found to be a ‘disguised employee’ and HMRC become aware of this then they can find themselves having to face financial consequences. The employer will have to pay income tax and National Insurance Contributions (NICs), backdated for the period you should have been classified as an employee.

So yes that is potentially why they would want to be back-dating the situation.

Now you know that may be the situation, you do need to consider your legal and tax situation in Australia when making any decision about whether you agree to this.

As atticus has posted and I agree, seek professional assistance in Australia.

[Tofros]

If you are not Uk tax resident you are likely outside the scope of UK IR 35. It seems more likely they are worried about the Aus equivalent and the exposure of their local branch office there. Is it an option to compromise and become an employee of the Aus branch but not retrospectively?