Contractors: IR35 & general discussion
Discussion
Greenmantle said:
Anubis said:
The "employers" (client) should be paying their own NI. They should not be putting it through as part of your advertised 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
Could someone put some real world numbers as an example to the above say based on a previous daily rate of say £400. Thanks.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
Edited by Anubis on Friday 28th February 16:21
If the rate to you is £400 a day then on an inside IR35 contract that is roughly a £90k salary.
The fees from an umbrella will be about £30 a week. You pay that from gross afaik.
The paye taxes can be found on hmrc websites. This will show you your take home and also what the umbrella will need to pay for eNI and apprenticeship levy.
CaptainSlow said:
Greenmantle said:
Anubis said:
The "employers" (client) should be paying their own NI. They should not be putting it through as part of your advertised 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
Could someone put some real world numbers as an example to the above say based on a previous daily rate of say £400. Thanks.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
Edited by Anubis on Friday 28th February 16:21
No point going on about how things should be, better to stick to how things are.
For those not switching across within a client then they should be pushing for a contractor rate and for eNI to be on top. I am certainly doing that and whilst it’s not exactly a breeze (ie everyone seems confused) I fully expect to achieve this. Maybe wishful thinking.
Indeed.
I'm sadly old enough to remember at the start of my contracting days in the 90's when, most of the contract jobs in my industry used to be advertised by agencies with 2 rates quoted, one for PAYE and a lower one for Ltd. Back then a lot of old school drawing board draughtmen didn't want the hassle of Ltd., and went PAYE through the agency. First job I went after was listed at £17.50/hr or £15/hr Ltd. By the 2000's this practice had ended and many ads were often listed as one rate, and with a suffix of Ltd only as clients knew they were onto a winner with Ltd only....for the obvious reasons.
What is happening now is these clients have suddenly had a fit of amnesia of what happened in the past and are now seeing this situation as a way of screwing us over, by getting us to cover their Employers tax for them.....by keeping rates at Ltd Co. PSC levels, instead of uplifting rate for PAYE inside IR35, just as previously.
I'm sadly old enough to remember at the start of my contracting days in the 90's when, most of the contract jobs in my industry used to be advertised by agencies with 2 rates quoted, one for PAYE and a lower one for Ltd. Back then a lot of old school drawing board draughtmen didn't want the hassle of Ltd., and went PAYE through the agency. First job I went after was listed at £17.50/hr or £15/hr Ltd. By the 2000's this practice had ended and many ads were often listed as one rate, and with a suffix of Ltd only as clients knew they were onto a winner with Ltd only....for the obvious reasons.
What is happening now is these clients have suddenly had a fit of amnesia of what happened in the past and are now seeing this situation as a way of screwing us over, by getting us to cover their Employers tax for them.....by keeping rates at Ltd Co. PSC levels, instead of uplifting rate for PAYE inside IR35, just as previously.
Slightly off topic of ir35 but another blow for contractors especially those like me that have let retained profits build up over time.
The new chancellor is considering getting rid of entrepreneurs relief...
https://www.theguardian.com/uk-news/2020/mar/01/ri...
The new chancellor is considering getting rid of entrepreneurs relief...
https://www.theguardian.com/uk-news/2020/mar/01/ri...
Gazzab said:
CaptainSlow said:
Greenmantle said:
Anubis said:
The "employers" (client) should be paying their own NI. They should not be putting it through as part of your advertised 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
Could someone put some real world numbers as an example to the above say based on a previous daily rate of say £400. Thanks.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
Edited by Anubis on Friday 28th February 16:21
No point going on about how things should be, better to stick to how things are.
For those not switching across within a client then they should be pushing for a contractor rate and for eNI to be on top. I am certainly doing that and whilst it’s not exactly a breeze (ie everyone seems confused) I fully expect to achieve this. Maybe wishful thinking.
Gazzab said:
CaptainSlow said:
You're just asking for a rate increase, you're not changing the process.
No I’m not asking for a rate increase. I am not responsible for employers NI. Some people really need to understand this, and how they are potentially getting screwed over by this.
aeropilot said:
Gazzab said:
CaptainSlow said:
You're just asking for a rate increase, you're not changing the process.
No I’m not asking for a rate increase. I am not responsible for employers NI. Some people really need to understand this, and how they are potentially getting screwed over by this.
CaptainSlow said:
aeropilot said:
Gazzab said:
CaptainSlow said:
You're just asking for a rate increase, you're not changing the process.
No I’m not asking for a rate increase. I am not responsible for employers NI. Some people really need to understand this, and how they are potentially getting screwed over by this.
Maybe I'm being too optimistic here but I cannot see this passing on of employer NI to the contractor lasting long. We are in a state of turmoil right now where contractors are generally a bit more pliable than normal as everyone tries to secure some work for the next few months. Agencies and end users are taking advantage of this. A few court cases, and a good dose of supply and demand will likely clean this up but for now, it stinks.
Of course HMRC won't give a s
t as they get their total tax haul even though it will mean that behind the scenes, their objective will absolutely not be fulfilled, i.e. that disguised employees are taxed as employees. They'll instead be taxed as employees and employers. How that will ever stand up in court, I have no idea but it won't be HMRC fighting it so they won't care.
Of course HMRC won't give a s
t as they get their total tax haul even though it will mean that behind the scenes, their objective will absolutely not be fulfilled, i.e. that disguised employees are taxed as employees. They'll instead be taxed as employees and employers. How that will ever stand up in court, I have no idea but it won't be HMRC fighting it so they won't care. CaptainSlow said:
Yes you are, that's the problem. To mitigate the problem you're asking for a rate increase.
It is unlawful to ask me to pay employers NI. Yes we are seeing those that are switching and sticking being asked to accept a lower rate which effectively mitigates the fee payers liability. This is not the same thing.
In an inside IR35 contract, the contractor shouldn't be responsible for Employers NI. This is clearly set out in the legislation. However what is happening is that businesses and clients are refusing to pay Employers NI because previous to IR35, they haven't had to pay it, in fact no one has which is where the issue lies.
So most employers want these changes to be "cost neutral" for them so many are refusing to pay the Employers NI, even though it's technically their responsibility so what is happening is that this cost is invariably being passed onto the contractor by being included in the day rate. It's not right and technically it's not even legal but in one man contractors vs big client co. scenarios, who do you think is likely to win that argument?
Unless someone is willing to take this to court and win, in which case it becomes enshrined in case law, then companies will continue to pass this cost onto the contractor.
So most employers want these changes to be "cost neutral" for them so many are refusing to pay the Employers NI, even though it's technically their responsibility so what is happening is that this cost is invariably being passed onto the contractor by being included in the day rate. It's not right and technically it's not even legal but in one man contractors vs big client co. scenarios, who do you think is likely to win that argument?
Unless someone is willing to take this to court and win, in which case it becomes enshrined in case law, then companies will continue to pass this cost onto the contractor.
Blown2CV said:
i get that people don't want to pay employers' NI, but surely the contractor's Ltd co is an employer... if you are trying to argue it isn't then aren't you playing into the hands of what IR35 is meant to do... you need to separate the company and the person
Correct - but if caught by IR35, then the client is now the employer, not the Ltd Co. Blown2CV said:
i get that people don't want to pay employers' NI, but surely the contractor's Ltd co is an employer... if you are trying to argue it isn't then aren't you playing into the hands of what IR35 is meant to do... you need to separate the company and the person
Generally the contractor ceases to have (or use) a Ltd co and becomes an employee of the umbrella co. Worth checking out how this all works before making incorrect statements - or ask questions instead. Blown2CV said:
i get that people don't want to pay employers' NI, but surely the contractor's Ltd co is an employer... if you are trying to argue it isn't then aren't you playing into the hands of what IR35 is meant to do... you need to separate the company and the person
Try following the thread a bit closer.......aeropilot said:
Blown2CV said:
i get that people don't want to pay employers' NI, but surely the contractor's Ltd co is an employer... if you are trying to argue it isn't then aren't you playing into the hands of what IR35 is meant to do... you need to separate the company and the person
Try following the thread a bit closer......."Normally" a LtdCo would already be paying Ers NI on salary payments made to its employees. However PSCs can avoid this by paying employees below the NI threshold. Under the new rules the end-client has to account for Ers NI before the money is paid to the PSC/Contractor. It's one of the loopholes that IR35 is going to close.
Strictly speaking this loophole was one that the Employer/End client was benefitting from rather than the Contractor so it's not really fair of them to pass it onto the Contractor.
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