At the beginning of June I was fired from the company where I worked for 15 years.
As part of this I had a settlement package, which included my full £30,000 tax-free benefit, plus some taxable money on top.
I decided to work as a digital marketing consultant and secured a few days of work a week with a rival of my former employer.
I also talked about consulting for my previous employer two or three days a week.
This would be different from my old job, which no longer exists, but involves parts of the company I previously worked with.
Can I work as a consultant for my old employer, through my own company, two or three days a week, without jeopardizing my tax-free severance benefit?
Redundancy: At the beginning of June I was fired from the company where I worked for 15 years
Kate Underwood, founder of Kate Underwood HR and Training, based in Southampton, said: This is an important question given the amount of your tax-free severance payment.
The first and most important issue to address is: was the redundancy real?
After all, that £30,000 exemption depends entirely on the role that actually ceases to exist.
When a job becomes redundant, HMRC will look at the content rather than the job titles.
In other words, if you end up back in the same building, recognizably doing the same work with a different label on it, they can argue that the layoff was never real and that the payment was something else.
The fact that you will be working on parts of the business that you used to deal with is not in itself fatal, but it does mean that the difference between the old role and the new assignment must be clear to an outsider, and not just to you and your former employer.
It is also worth emphasizing that the risk does not lie solely with you.
Kate Underwood is the founder of Kate Underwood HR and Training
If things get out of hand, the ex-employer is the one who still carries the PAYE liability, which is exactly why some employers get nervous about rehiring people they’ve just paid off.
Timing is also important. There is no magic number of weeks, but the closer the return is to the exit, the worse it seems.
You were discharged at the beginning of June and it is now mid-August, so you have a bit of daylight, which helps.
The four-week re-engagement rule under section 138 of the Employment Rights Act is long gone, so that particular trap is not in play.
Secondly, the settlement agreement. This is the first document you should read and most people never look at their document again after signing.
You already work for a direct rival, which for many people would be the bigger ‘live’ problem, bigger even than the tax issue.
You should check for non-compete clauses, non-solicitation of customers and staff, confidentiality, non-renewal wording and, crucially, any chargeback or refund triggers.
Some settlement agreements include a guarantee that the employee did not work with a competitor.
If you signed such a signature and had a conversation before the ink dried, that’s an issue you need to address as soon as possible.
Thirdly, all of this needs to be viewed against the backdrop of IR35 and employment status.
Consulting two or three days a week for a former employer through your own limited company is about as much of a red flag as HMRC gets.
If the ex-employer is a medium or large company, they determine your status and make the decision, not you, and many of them take the cautious route and place returning ex-staff in IR35 by default.
The test comes down to control, substitution and reciprocity of obligations.
If you sit at the same desk, on the same roster, report to the same manager and pick up whatever, in the eyes of HMRC you are an employee wearing a lanyard that says ‘consultant’.
If you want this to last, the practical matters are important.
A truly different scope with defined results instead of open days is important, as is a good contract for services instead of a handshake.
You will also need to ensure that you send invoices from the new limited company.
Additionally, it is best that you provide your own equipment where possible, set your own working hours and secure a right to a replacement if you can negotiate one.
There should be no employee benefits, no old email address, no place on the org chart, no showing up at the team meeting like you never left.
Everything needs to be documented at the time instead of having to be rebuilt two years later when someone, namely the tax authorities, comes knocking.
You also have to be honest with yourself about capacity. A few days at your competitor plus two or three at your old employer is a full week, which makes you look much more like someone who has two jobs than someone who runs a consultancy firm.
And there is a broader point for employers that is worth making. If you make a position redundant and buy the same person back three months later at a daily rate, you have told everyone still on the payroll exactly what your layoff process was worth.
It’s a moral issue as well as a tax issue, and that’s how bogus redundancy claims begin.
