Contractors: IR35 & general discussion
Discussion
Guys, could do with some pointers please as i'm entering the world of contracting in March.
- Been full-time employed for years but made redundant at Xmas - so not choosing contracting by design!
- Have landed an interim contract role with a massive global corporation which i'm excited about, starting in March
- On landing the role the recruiter reminded me about the IR35 changes in April (I had heard a bit about it but not that close to the detail - subsequently read some of this thread) and pointed me towards an approved list of half-a-dozen umbrella companies that are approved suppliers for this role
- They told me its up to me to select one of these umbrellas, either with my own Ltd. company or directly an umbrella 'employee'
- The company i'm contracting for will most likely put all contractors inside IR35 as they are a very visible household name who won't take risks with their reputation (and they also have deep pockets)
- As i have a family to support i'd ideally like to minimise risks on stuff like sick pay
I have no idea how I should approach the umbrella company conversations other than to get hold of their rates/deductions and go for the one that offers the best deal (with decent comms/service of course). Is there any advantage to starting a Ltd. company in this scenario, assuming that i may continue contracting for a couple of years after this specific engagement?
Any pointers/resources for this appreciated!
- Been full-time employed for years but made redundant at Xmas - so not choosing contracting by design!
- Have landed an interim contract role with a massive global corporation which i'm excited about, starting in March
- On landing the role the recruiter reminded me about the IR35 changes in April (I had heard a bit about it but not that close to the detail - subsequently read some of this thread) and pointed me towards an approved list of half-a-dozen umbrella companies that are approved suppliers for this role
- They told me its up to me to select one of these umbrellas, either with my own Ltd. company or directly an umbrella 'employee'
- The company i'm contracting for will most likely put all contractors inside IR35 as they are a very visible household name who won't take risks with their reputation (and they also have deep pockets)
- As i have a family to support i'd ideally like to minimise risks on stuff like sick pay
I have no idea how I should approach the umbrella company conversations other than to get hold of their rates/deductions and go for the one that offers the best deal (with decent comms/service of course). Is there any advantage to starting a Ltd. company in this scenario, assuming that i may continue contracting for a couple of years after this specific engagement?
Any pointers/resources for this appreciated!
darth_pies said:
Is there any advantage to starting a Ltd. company in this scenario, assuming that i may continue contracting for a couple of years after this specific engagement?
No point whatsoever of startup up a Ltd Co. if you say they are going to blanket the roles inside IR35.Just go with a brolly, and then if later on you get offered any roles in the future elsewhere that will be outside, then startup a Ltd Co. at that point.
Assuming it’s an inside contract....Suggest you pick one of the umbrella co’s and don’t bother with Ltd co. Post up the list as I have just been through this process. You need to consider fees, reputation and pension. You will get very little in way of benefits beyond take home and you will pay for the benefits you get eg holiday. You will at best only get statutory sick pay and so if this is important then you will need to buy insurance.
darth_pies.
If using an umbrella company there is no reason to have a limited company. It's being paid to you personally after all taxes have been removed just like a normal employee. You are basically a temporary no rights employee whereby the client isn't obliged to give you anything and you can be fired any time.
Client > Agency > Umbrella > You
Remember, the agency will advertise the rate being passed from them to the umbrella company. You should contact the umbrella company for an example of breakdown of costs (i.e. if you receive £400 a day from agency, show me what is employees NI & Tax, plus umbrellas handling fee; from that you'll see what will be paid into your own personal bank account to do what you like).
Going inside IR35 (i.e. you are a hidden offpayroll employee) and using an umbrella means you cannot claim expenses in full like a LTD company.
You can only offset your tax using receipts via an umbrella. For example, a train season ticket to get to a temporary work location may cost £450 each month - as a LTD company (outside IR35) you would've been able to get the full amount reimbursed by your limited as it's a company expense. However, since you are going inside IR35 via an umbrella you will not be paid back any expenses occurred - the umbrella can only ask you for receipts to offset against some tax (it's not properly reimbursed).
Just be careful - what you end up with from your advertised day rate could be significantly less due to everyone taking their share from it.
You also need to remember that you'll get no holiday or sick leave pay, etc - so your rate has to cover that long term, otherwise you'll be working every day without a break because you didn't factor this in (umbrellas are not like normal companies - they won't give you holiday entitlement; they are simply fee handlers that deduct costs).
If using an umbrella company there is no reason to have a limited company. It's being paid to you personally after all taxes have been removed just like a normal employee. You are basically a temporary no rights employee whereby the client isn't obliged to give you anything and you can be fired any time.
Client > Agency > Umbrella > You
Remember, the agency will advertise the rate being passed from them to the umbrella company. You should contact the umbrella company for an example of breakdown of costs (i.e. if you receive £400 a day from agency, show me what is employees NI & Tax, plus umbrellas handling fee; from that you'll see what will be paid into your own personal bank account to do what you like).
Going inside IR35 (i.e. you are a hidden offpayroll employee) and using an umbrella means you cannot claim expenses in full like a LTD company.
You can only offset your tax using receipts via an umbrella. For example, a train season ticket to get to a temporary work location may cost £450 each month - as a LTD company (outside IR35) you would've been able to get the full amount reimbursed by your limited as it's a company expense. However, since you are going inside IR35 via an umbrella you will not be paid back any expenses occurred - the umbrella can only ask you for receipts to offset against some tax (it's not properly reimbursed).
Just be careful - what you end up with from your advertised day rate could be significantly less due to everyone taking their share from it.
You also need to remember that you'll get no holiday or sick leave pay, etc - so your rate has to cover that long term, otherwise you'll be working every day without a break because you didn't factor this in (umbrellas are not like normal companies - they won't give you holiday entitlement; they are simply fee handlers that deduct costs).
Edited by Anubis on Friday 28th February 14:17
Gazzab said:
Assuming it’s an inside contract....Suggest you pick one of the umbrella co’s and don’t bother with Ltd co. Post up the list as I have just been through this process.
Thanks - its Orange Genie, Parasol, Paystream, Umbrella.co.uk, Brookson One, NASAAnubis said:
Advice
Thanks - that's helpful95JO said:
If a contract role is advertised as outside of IR35, how can you be sure of this? Surely you don't just take their word for it?
Welcome to IR35. 
It's this kind of business uncertainty that we have been operating under for years.
You take their word for it, and then insure yourself up to the eyeballs for when HMRC decide to challenge it.
Clockwork Cupcake said:
95JO said:
If a contract role is advertised as outside of IR35, how can you be sure of this? Surely you don't just take their word for it?
Welcome to IR35. It's this kind of business uncertainty that we have been operating under for years.
You take their word for it, and then insure yourself up to the eyeballs for when HMRC decide to challenge it.
darth_pies said:
Gazzab said:
Assuming it’s an inside contract....Suggest you pick one of the umbrella co’s and don’t bother with Ltd co. Post up the list as I have just been through this process.
Thanks - its Orange Genie, Parasol, Paystream, Umbrella.co.uk, Brookson One, NASAAnubis said:
Advice
Thanks - that's helpfulOne other thing is to be very careful re employers NI deductions. This is massive! Make sure you have it in writing throughout the negotiations and in the contract that the rate is your rate and that eNI won’t be deducted from it by the umbrella ie the client covers it / adds it on.
Gazzab said:
One other thing is to be very careful re employers NI deductions. This is massive! Make sure you have it in writing throughout the negotiations and in the contract that the rate is your rate and that eNI won’t be deducted from it by the umbrella ie the client covers it / adds it on.
^This in spades...... 
aeropilot said:
Gazzab said:
One other thing is to be very careful re employers NI deductions. This is massive! Make sure you have it in writing throughout the negotiations and in the contract that the rate is your rate and that eNI won’t be deducted from it by the umbrella ie the client covers it / adds it on.
^This in spades...... V8mate said:
Is HMRC cool with that? A payment leaving the employing organisation for the contractor's benefit, but not being treated as taxable income?
It's an inside contract and the employers taxes are being paid. What's missing?Note: Apprentice Levy also may be in scope. So make sure you know who is paying it.
V8mate said:
aeropilot said:
Gazzab said:
One other thing is to be very careful re employers NI deductions. This is massive! Make sure you have it in writing throughout the negotiations and in the contract that the rate is your rate and that eNI won’t be deducted from it by the umbrella ie the client covers it / adds it on.
^This in spades...... I.e rate you are quoted by agent or client to umbrella includes the deduction for ENI or not.
People are getting stitched as what agencies and client are saying is the rate 'to you' but actually isn't as its the rate to the brolly.
Very much seeing this where I am now, as shenanigans goings on between the client and their locked in preferred supply chain agency (who is useless) coning guys into signing up to stuff that will be worse than what they are saying it will be.
The "employers" (client) should be paying their own NI. They should not be putting it through as part of your advertised day rate.
The agency needs to make it clear to your employer (client) that they need to add an additional monies owed to cover their tax liabilities. This is what HMRC are making all this fuss over. It should not be down to the contractor (temp employee) to pay their employers tax from their negotiated day rate.
Client
Your day rate + agency fee + their (employers) taxes + any other costs
Agency
Take their fee. Pass on everything else to umbrella
Umbrella
Pass clients NI and other costs to HMRC. Take their fee (from your day rate). Work out taxes and NI owed by you (from day rate) and pass on remaining amount to you
You
Payment received in personal bank account after employee's taxes + umbrella fees
This is the issue for current contractors atm as it's a different structure and agreements in place than above.
Those currently in a contract have negotiated a day rate as a LTD company providing services; from April are expected to pay their employers NI tax from it, which was never a conversation raised with anyone since pretty much everyone regarded themselves as outside (i.e. a limited company offering services; it was not a hidden employment contract). Clients are simply taking the approach of take it or leave it. Most are leaving.
Plus there is risk of retrospective investigation from HMRC asking for those missing employers payments from the contractor for those that just continued with same client from April....no, it doesn't make sense but there we are. (This only applies if you are currently in a contract as a Ltd company)
The agency needs to make it clear to your employer (client) that they need to add an additional monies owed to cover their tax liabilities. This is what HMRC are making all this fuss over. It should not be down to the contractor (temp employee) to pay their employers tax from their negotiated day rate.
Client
Your day rate + agency fee + their (employers) taxes + any other costs
Agency
Take their fee. Pass on everything else to umbrella
Umbrella
Pass clients NI and other costs to HMRC. Take their fee (from your day rate). Work out taxes and NI owed by you (from day rate) and pass on remaining amount to you
You
Payment received in personal bank account after employee's taxes + umbrella fees
This is the issue for current contractors atm as it's a different structure and agreements in place than above.
Those currently in a contract have negotiated a day rate as a LTD company providing services; from April are expected to pay their employers NI tax from it, which was never a conversation raised with anyone since pretty much everyone regarded themselves as outside (i.e. a limited company offering services; it was not a hidden employment contract). Clients are simply taking the approach of take it or leave it. Most are leaving.
Plus there is risk of retrospective investigation from HMRC asking for those missing employers payments from the contractor for those that just continued with same client from April....no, it doesn't make sense but there we are. (This only applies if you are currently in a contract as a Ltd company)
Edited by Anubis on Friday 28th February 16:21
aeropilot said:
V8mate said:
aeropilot said:
Gazzab said:
One other thing is to be very careful re employers NI deductions. This is massive! Make sure you have it in writing throughout the negotiations and in the contract that the rate is your rate and that eNI won’t be deducted from it by the umbrella ie the client covers it / adds it on.
^This in spades...... I.e rate you are quoted by agent or client to umbrella includes the deduction for ENI or not.
People are getting stitched as what agencies and client are saying is the rate 'to you' but actually isn't as its the rate to the brolly.
Very much seeing this where I am now, as shenanigans goings on between the client and their locked in preferred supply chain agency (who is useless) coning guys into signing up to stuff that will be worse than what they are saying it will be.
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