IR35 and Umbrella Companies Confused

IR35 and Umbrella Companies Confused

Author
Discussion

Wildfire

Original Poster:

9,774 posts

251 months

Friday 20th December 2019
quotequote all
To top off my terrible year, I have ended up in a very bad job which I won’t go into.

On the plus point I have been offered the opportunity to contract in to an organisation that I have worked for previously, as a stop gap until I get another permanent job.

However they would like to do the contract under IR35, which doesn’t really bother me too much. Getting started is more of a priority in the new year as I’ll be leaving my job first week January.

So, how does it work through an umbrella company? I’m totally clueless about the whole thing. If I go with an umbrella company do they just sort it all out and pay me after I pay their monthly fee?

I’m looking to get the easiest route through to working as it will probably only be for 3-6 months as I am waiting on some other opportunities to develop in to business lines.

As I know nothing please, any advice would be appreciated.

Unless someone wants to hire an InfoSec Professional wink

UpTheIron

3,992 posts

267 months

Friday 20th December 2019
quotequote all
Wildfire said:
So, how does it work through an umbrella company? I’m totally clueless about the whole thing. If I go with an umbrella company do they just sort it all out and pay me after I pay their monthly fee?
Exactly that.

Just be careful of dodgy brollies...

Fatball

645 posts

58 months

Friday 20th December 2019
quotequote all
Umbrella company will sort it all with no issues. A good one will anyway.

I used one for 4 years with no issues at the time or since with payments or HMRC.

Eric Mc

121,779 posts

264 months

Saturday 21st December 2019
quotequote all
And other umbrellas can be very problematic - they vary hugely.

If these new "employers" really want you, they should take you on as a bona fide employee - a temporary one if necessary.

Wilmslowboy

4,189 posts

205 months

Saturday 21st December 2019
quotequote all
By far the easiest thing would be they make you an employee

No worries about tax (you will be on PAYE, so you will be taxed 'correctly')
No need for PI insurance
No worries about an umbrella co (that might run off with your money)
Not need for time sheets


Ask them if them will simply give you a fixed term 'permi' contract, you also get a few holiday days.




mmm-five

11,227 posts

283 months

Saturday 21st December 2019
quotequote all
Eric Mc said:
If these new "employers" really want you, they should take you on as a bona fide employee - a temporary one if necessary.
In our company it takes 3 months to get someone on a fixed-term contract, but less than a month to get a contractor.

But they have also told all 'limited company' contractors, that as of Apr 2020, they'll be considered inside IR35 (unless they role has been provided under a limited value purchase order raised this year) and will now be paid net of tax & NI unless they bill through an agency/umbrella who will do the PAYE for them.

They're all spending the next 3 months trying to negotiate daily rate rises in the 30% range to offset the extra tax, employee NI and employer NI they'll have to pay on their weekly wage vs the 'low wages' they seem to all seem to currently take out of the company.

The few that have been offered 2 year fixed term contracts in place of their current 6 month rolling contracts (with 1 week's notice) have turned them down as the offered 'total package' is about 2/3rd what their day rate is, and the gross salary is about a 1/3rd.

Edited by mmm-five on Saturday 21st December 11:01

Eric Mc

121,779 posts

264 months

Saturday 21st December 2019
quotequote all
mmm-five said:
In our company it takes 3 months to get someone on a fixed-term contract, but less than a month to get a contractor.

But they have also told all 'limited company' contractors, that as of Apr 2020, they'll be considered inside IR35 (unless they role has been provided under a limited value purchase order raised this year) and will now be paid net of tax & NI unless they bill through an agency/umbrella who will do the PAYE for them.

They're all spending the next 3 months trying to negotiate daily rate rises in the 30% range to offset the extra tax, employee NI and employer NI they'll have to pay on their weekly wage vs the 'low wages' they seem to all seem to currently take out of the company.

The few that have been offered 2 year fixed term contracts in place of their current 6 month rolling contracts (with 1 week's notice) have turned them down as the offered 'total package' is about 2/3rd what their day rate is, and the gross salary is about a 1/3rd.

Edited by mmm-five on Saturday 21st December 11:01
They are walking a tight rope by pushing all their contractors in IR35 style arrangements. It won't be long before many such organisations will start getting sued for holiday pay, sick pay, maternity rights etc etc. We've already had once such case in the public sector which adopted these new IR35 rules 2 years ago. Ironically, the "employer" in that case was HMRC itself.

Wildfire

Original Poster:

9,774 posts

251 months

Saturday 21st December 2019
quotequote all
Thanks everyone. I’ve worked for them before through a consultancy outside IR35, but as they are a charity that is associated with a hospital, the new head of something or other has mandated IR35.

As I’m definitely leaving the current role come 6th January (so many issues) my priority is making sure that I’m not out of work for too long. And I am generally happy with IR35, I just want to get going with the work as this year has been frankly terrible.

If it goes on past 6 months I’ll probably broach a perm role.

Eric Mc

121,779 posts

264 months

Saturday 21st December 2019
quotequote all
Does the "employer" have an annual turnover exceeding £5 million?

mmm-five

11,227 posts

283 months

Saturday 21st December 2019
quotequote all
Eric Mc said:
They are walking a tight rope by pushing all their contractors in IR35 style arrangements. It won't be long before many such organisations will start getting sued for holiday pay, sick pay, maternity rights etc etc. We've already had once such case in the public sector which adopted these new IR35 rules 2 years ago. Ironically, the "employer" in that case was HMRC itself.
Covering off those 'lost benefits' is part of the argument the contractors are using for an increase in day rate, but I assume the client knows they'll win some, lose some in the negotiations.

Wilmslowboy

4,189 posts

205 months

Saturday 21st December 2019
quotequote all
mmm-five said:
….

They're all spending the next 3 months trying to negotiate daily rate rises in the 30% range to offset the extra tax, employee NI and employer NI they'll have to pay on their weekly wage vs the 'low wages' they seem to all seem to currently take out of the company.
As someone that has worked both as a contractor and permie, the real world difference is more like 10% (once corp tax, accounting fees and dividend (paye) tax is taken into account) I know there are 'better ways' in the ltd company world to pay even less tax (loan anyone) but I like to sleep at night.

The big uplift for most contractor is the fact they go from earning lets say £1,200 a week as a pemie (less payee) to closer to £2.5k a week.

My experience is in the IT contract world.


Eric Mc

121,779 posts

264 months

Saturday 21st December 2019
quotequote all
mmm-five said:
Eric Mc said:
They are walking a tight rope by pushing all their contractors in IR35 style arrangements. It won't be long before many such organisations will start getting sued for holiday pay, sick pay, maternity rights etc etc. We've already had once such case in the public sector which adopted these new IR35 rules 2 years ago. Ironically, the "employer" in that case was HMRC itself.
Covering off those 'lost benefits' is part of the argument the contractors are using for an increase in day rate, but I assume the client knows they'll win some, lose some in the negotiations.
We'll see how it goes but more and more people are challenging their own (often unwilling) treatment as self-employed status individuals. The bulk of employment status legal cases are not tax related but entitlement and employment rights related.

Expect an upsurge.

Wildfire

Original Poster:

9,774 posts

251 months

Saturday 21st December 2019
quotequote all
Eric Mc said:
Does the "employer" have an annual turnover exceeding £5 million?
I would think so. It’s quite a big charity.

Thanks for all the info. It’s really helpful.

Eric Mc

121,779 posts

264 months

Saturday 21st December 2019
quotequote all
Employer's with turnovers under £5 million are exempted from having to apply the new IR35 rules.

Wildfire

Original Poster:

9,774 posts

251 months

Saturday 21st December 2019
quotequote all
Eric Mc said:
Employer's with turnovers under £5 million are exempted from having to apply the new IR35 rules.
Ah. I guess the size, turnover and NHS links are driving it then.

Mr Pointy

11,147 posts

158 months

Saturday 21st December 2019
quotequote all
OP: there's a large amount of information about Umbrellas here:
https://www.contractoruk.com/

They have a forum as well.

Dr Jekyll

23,820 posts

260 months

Saturday 21st December 2019
quotequote all
Wilmslowboy said:
By far the easiest thing would be they make you an employee

No worries about tax (you will be on PAYE, so you will be taxed 'correctly')
No need for PI insurance
No worries about an umbrella co (that might run off with your money)
Not need for time sheets


Ask them if them will simply give you a fixed term 'permi' contract, you also get a few holiday days.
Working through an umbrella you are on PAYE, an employee of the umbrella*. Time sheets are trivial, usually done on line and just indicate hours or days according to preference. In my experience the umbrella paid me every week, I got paid before the client had paid the agency.
Come to think of it, there was far less hassle than direct PAYE employment.
No appraisals, no team building exercises, no HR bks.

(*Strange outfits that pay directors loans in Kazakhstan currency may vary)

Dr Jekyll

23,820 posts

260 months

Saturday 21st December 2019
quotequote all
Wilmslowboy said:
The big uplift for most contractor is the fact they go from earning lets say £1,200 a week as a pemie (less payee) to closer to £2.5k a week.

My experience is in the IT contract world.
What skill set is that?

essayer

9,011 posts

193 months

Saturday 21st December 2019
quotequote all
They go from earning £1200 a week to working for a limited company charging them out at £2500 a week - out of which the company has to pay corporation tax, a pension, holidays, sick pay, medical insurance, and so on.
Certainly not doubling the income!

Wildfire

Original Poster:

9,774 posts

251 months

Sunday 22nd December 2019
quotequote all
Mr Pointy said:
OP: there's a large amount of information about Umbrellas here:
https://www.contractoruk.com/

They have a forum as well.
Brilliant. Thanks! I’ll take a look.