Operating in IR35
Discussion
So let’s keep this simple for me .
Currently i am a LTD company and operate outside IR35, so all good .
Come 5th April I will pick up a new contract and it will have been deemed by my new customer that it sits inside IR35. Fine . The day rate has been increased by say 20% to offset increase in tax .
For me personally , what difference will there be apart from paying more tax ? What needs to change ? I don’t rant to gin through an umbrella company as why would i give someone a cut of my cash ? My new customer is happy to pay me more per day so as above , what’s different for me ? Can i still trade through my current LTD company ? Can i still claim for expenses?
Thanks all
Currently i am a LTD company and operate outside IR35, so all good .
Come 5th April I will pick up a new contract and it will have been deemed by my new customer that it sits inside IR35. Fine . The day rate has been increased by say 20% to offset increase in tax .
For me personally , what difference will there be apart from paying more tax ? What needs to change ? I don’t rant to gin through an umbrella company as why would i give someone a cut of my cash ? My new customer is happy to pay me more per day so as above , what’s different for me ? Can i still trade through my current LTD company ? Can i still claim for expenses?
Thanks all
Well your customer needs to take on the task of deducting PAYE, employers NI (maybe), employees NI & Apprentice Levy (maybe) & pay you what's left. They also need to handle the HMRC side to demonstrate all deductions have been made correctly. You can still invoice via your PSC but you can't claim expenses. 20% uplift may still leave you out of pocket.
You will never be better off financially using an umbrellas as, on top of the PAYE/NIC and other costs outlined above, they will be taking their "agent's" fees and commissions too. The only area you might feel better off about is having less admin to do at your own end.
If you stay operating through your own limited company, which is definitely an option, there are some additional accounting and tax computational changes as to how the IR35 income is processed through your company and declared in Corporation Tax computations. If you are using an accountant at the moment regarding the annual accounts and tax, then the accountant should be geared up to making whatever changes are needed in the annual submissions to HMRC.
If you stay operating through your own limited company, which is definitely an option, there are some additional accounting and tax computational changes as to how the IR35 income is processed through your company and declared in Corporation Tax computations. If you are using an accountant at the moment regarding the annual accounts and tax, then the accountant should be geared up to making whatever changes are needed in the annual submissions to HMRC.
So my understanding is this .
You’re right , i can go on payroll however to get say 80k take home pay wouldn’t happen for me . They would have to make me a senior manager/director as their internal grade system just wouldn’t allow it .
Doing through my own company they will adjust my day rate so that at the end of the day i still take home 80k after tax . I’m still on their books as a contractor for all intents and purposes . I just pay more tax . They can drop me with 5 days notice etc
You’re right , i can go on payroll however to get say 80k take home pay wouldn’t happen for me . They would have to make me a senior manager/director as their internal grade system just wouldn’t allow it .
Doing through my own company they will adjust my day rate so that at the end of the day i still take home 80k after tax . I’m still on their books as a contractor for all intents and purposes . I just pay more tax . They can drop me with 5 days notice etc
I've no idea on what the current state of play is with umbrella's but years ago I used one for a few contracts and it was actually pretty good. The benefits of not having to deal with all the Ltd company admin shouldn't be ignored especially as you've already got the rate increase to more or less compensate for this. You might feel less "in business" by not using your own Ltd, but that's just contractor vanity!
Also contracted for a huge multinational where all their contractors had to be PAYE via their preferred agency. I got paid more than I was expecting so this was once again far better than running my own Ltd.
Also contracted for a huge multinational where all their contractors had to be PAYE via their preferred agency. I got paid more than I was expecting so this was once again far better than running my own Ltd.
craig511 said:
Doing through my own company they will adjust my day rate so that at the end of the day i still take home 80k after tax . I’m still on their books as a contractor for all intents and purposes . I just pay more tax . They can drop me with 5 days notice etc
If your client is prepared to raise your rate to retain you then your'e good to go, but make sure you've worked out how much the rise needs to be. I've seen 24% quoted but this wouldn't include the effect of not being able to claim expenses.You might need to be aware of HMRC coming after you for retrospective tax; if you are working as you did before & suddenly your contract isinside IR35, then why wasn't it so it the previous years? They have indicated that they won't do this, but they cannot be trusted.
Surely the additional cost of having to go via an Umbrella Co is the offset by not having to pay accountancy fees?
I'm currently working through my own Ltd Co inside IR35, but my client co has imposed a 'No PSCs' rule from 1st January, forcing me to go via an Umbrella if I want to stay with them.
I am currently in discussion on day rate but the big sticking block for me is pensions. Running my Ltd Co allows my PSC to pay up a decent whack into my pension plan 'off the top line' before taxation and NI. I will lose that ability, with the Umbrella Co paying me net of all deductions, but then of course being able to pay into my pension net, then claiming relief on it.
The Govt seems to have overlooked - or rather, has intentionally done this - to stop PSCs making use of this facility, to minimise the individual's higher rate tax liability - one is able to put £40K PA (plus any unused 'carry forward' allowance into a pension each year.
Some Umbrella Co's are offering a 'salary sacrifice' pension arrangements, where some of the fee income is paid into a pension (either their own Group Scheme, or the Contractor's existing plan) before Tax & NI calculations are done. Another Umbrella Co told me this practice had been 'outlawed', but I cannot find any guidance online about this. Interested to know if anyone has the actual facts.
I'm currently working through my own Ltd Co inside IR35, but my client co has imposed a 'No PSCs' rule from 1st January, forcing me to go via an Umbrella if I want to stay with them.
I am currently in discussion on day rate but the big sticking block for me is pensions. Running my Ltd Co allows my PSC to pay up a decent whack into my pension plan 'off the top line' before taxation and NI. I will lose that ability, with the Umbrella Co paying me net of all deductions, but then of course being able to pay into my pension net, then claiming relief on it.
The Govt seems to have overlooked - or rather, has intentionally done this - to stop PSCs making use of this facility, to minimise the individual's higher rate tax liability - one is able to put £40K PA (plus any unused 'carry forward' allowance into a pension each year.
Some Umbrella Co's are offering a 'salary sacrifice' pension arrangements, where some of the fee income is paid into a pension (either their own Group Scheme, or the Contractor's existing plan) before Tax & NI calculations are done. Another Umbrella Co told me this practice had been 'outlawed', but I cannot find any guidance online about this. Interested to know if anyone has the actual facts.
Utter confusion all round. This is a sure fire recipe for HMRC to retrospectively chase underpaid taxes at a later date - as they are doing for those who used umbrella type situations to avail of loans and other "tax saving" methods in past years.
Being deemed to be within IR35 does not make you an employee - and it was never intended that it did. What it does is that it makes your "intermediary" (i.e. your limited company in most cases) liable to PAYE and NI LIKE an employee (without actually turning you into a bona fide employee).
The only change that is happening in April 2020 is that the responsibility for deciding whether your intermediary is caught by IR35 now falls on your client rather than on your own company - and they have the primary responsibility to calculate and pay the IR35 taxes and NI arising.
There is no obligation for any of these engagers to suddenly put contractors on the payroll as individuals - although many are choosing to go down that route.
Being deemed to be within IR35 does not make you an employee - and it was never intended that it did. What it does is that it makes your "intermediary" (i.e. your limited company in most cases) liable to PAYE and NI LIKE an employee (without actually turning you into a bona fide employee).
The only change that is happening in April 2020 is that the responsibility for deciding whether your intermediary is caught by IR35 now falls on your client rather than on your own company - and they have the primary responsibility to calculate and pay the IR35 taxes and NI arising.
There is no obligation for any of these engagers to suddenly put contractors on the payroll as individuals - although many are choosing to go down that route.
craig511 said:
So my understanding is this .
You’re right , i can go on payroll however to get say 80k take home pay wouldn’t happen for me . They would have to make me a senior manager/director as their internal grade system just wouldn’t allow it .
Doing through my own company they will adjust my day rate so that at the end of the day i still take home 80k after tax . I’m still on their books as a contractor for all intents and purposes . I just pay more tax . They can drop me with 5 days notice etc
I think you've missed the point with regards to going on the payroll. I think the point was that if somebody has to deduct NI and PAYE, why doesn't the client put you on their payroll and they do it?You’re right , i can go on payroll however to get say 80k take home pay wouldn’t happen for me . They would have to make me a senior manager/director as their internal grade system just wouldn’t allow it .
Doing through my own company they will adjust my day rate so that at the end of the day i still take home 80k after tax . I’m still on their books as a contractor for all intents and purposes . I just pay more tax . They can drop me with 5 days notice etc
This doesn't mean becoming an employee, you're just a fixed term contract, so thought this meant purely that they do the deductions and give you a payslip based on whatever you've agreed with them.
Read up on "Susan Winchester V HMRC". Although applying PAYE and NI to what you are paid does not automatically convey on you all your employment rights, HMRC has conceded that they had to pay Ms Winchester some holiday pay.
Watch this space. Over the next few years you will see more court cases where contractors who have been forced into suffering PAYE and NI through the change in the emphasis of IR35 will start clamouring for proper employment rights (and rightly so too).
Watch this space. Over the next few years you will see more court cases where contractors who have been forced into suffering PAYE and NI through the change in the emphasis of IR35 will start clamouring for proper employment rights (and rightly so too).
Eric Mc said:
Watch this space. Over the next few years you will see more court cases where contractors who have been forced into suffering PAYE and NI through the change in the emphasis of IR35 will start clamouring for proper employment rights (and rightly so too).
Clients are over a barrel aren't they? If they continue to let their contractors operate outside IR35 then they risk being liable in the event of an investigation, but forcing them all inside IR35 could also open the door to employment rights just like the other well known gig economy businesses. Rock and a hard place. The government's own Public Accounts Committee is pretty scathing over the recent IR35 reforms -
The Public Accounts Committee’s (PAC) has investigated the effectiveness of the public sector implementation of the updated IR35 regime. The committee is highly critical of HMRC’s approach to the application and roll out of the updated off-payroll working rules. Central government departments have struggled to comply with the reforms and owe substantial back taxes. The PAC is concerned that it is too difficult for workers to challenge incorrect status determinations. The report states HMRC does not know what it costs each part of the labour supply chain to administer the reforms in practice. The government must address the inequitable tax and legal treatment of workers.
The Public Accounts Committee’s (PAC) has investigated the effectiveness of the public sector implementation of the updated IR35 regime. The committee is highly critical of HMRC’s approach to the application and roll out of the updated off-payroll working rules. Central government departments have struggled to comply with the reforms and owe substantial back taxes. The PAC is concerned that it is too difficult for workers to challenge incorrect status determinations. The report states HMRC does not know what it costs each part of the labour supply chain to administer the reforms in practice. The government must address the inequitable tax and legal treatment of workers.
You really need an uplift of at least 25% from Outside to Inside, ideally 40%
Out of your 20% you have to allow for the 15.05% Employers NI and then base your salary on the rest as PAYE.
Standard umbrella fee's are £100 a month so if you can avoid them then great but some firms insist that you use one.
Obviously you'll pay more tax but consider pensions and ways of reducing the taxable income.
Childcare - You loose child benefit at £60k and the 30 free nursery hours at £100k
Out of your 20% you have to allow for the 15.05% Employers NI and then base your salary on the rest as PAYE.
Standard umbrella fee's are £100 a month so if you can avoid them then great but some firms insist that you use one.
Obviously you'll pay more tax but consider pensions and ways of reducing the taxable income.
Childcare - You loose child benefit at £60k and the 30 free nursery hours at £100k
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