IR35 and Umbrella Companies Confused

[Freakuk]

I have a dumb question, hopefully easily answerable.

If you are deemed inside IR35 then your tax and NI contributions are paid at source, but your contract is direct between the hiring company and you as an individual right? So all monies are paid directly to the individual, not via your ltd company?

So what does an umbrella offer over this? Does the umbrella pay your ltd company and you draw salary and dividends as normal? Is this more tax efficient than PAYE?

[worsy]

Freakuk said:

I have a dumb question, hopefully easily answerable.

If you are deemed inside IR35 then your tax and NI contributions are paid at source, but your contract is direct between the hiring company and you as an individual right? So all monies are paid directly to the individual, not via your ltd company?

So what does an umbrella offer over this? Does the umbrella pay your ltd company and you draw salary and dividends as normal? Is this more tax efficient than PAYE?

Usually the contract will be between the engager(Agency) and the brolly. The brolly then pays you net of tax.

This is unlikely to be different in the new world, so the end client (employer) won't be running you through payroll like the permies. This would be different for a FixedTermContract where for the duration you assume permie benefits.

[Eric Mc]

The payment arrangements will not be any different to what happened before - except your company will receive the income net of PAYE and NI.

[Deep Thought]

Eric Mc said:

The payment arrangements will not be any different to what happened before - except your company will receive the income net of PAYE and NI.

Out of curiosity, what would be the advantage of putting it in to your ltd company account rather than just directly in to your personal account?

[mmm-five]

Deep Thought said:

Yes, board level for the overall strategy, but i was meaning if they did it on a case by case basis - which is what HMRC propose companies do - it would ultimately be down to the HR department to making decisions.

I also think the board would take a steer from HR (presumably Head of HR)

Thats what i am seeing happening where i am anyway.

Ours has gone for the scattergun approach, and we've already have some contractors leave on the basis that they'd rather start something elsewhere ASAP, before they're asked to cover extra duties of someone else who's leaving.

I was lucky in one way, as I got a rate rise in a couple of years ago to take this into account, and no-one batted an eyelid back then...probably because there were so few doing so. Now it's going to affect about 1500 people.

They can't say they weren't warned though, as the initial letter went out 12 months ago to say that they were considering how best to resolve these issues, and offered plenty of people fixed-term FTE contracts instead. Some took them, some left, and some decided to stick it out on a LTD basis for as long as they could.

[worsy]

Deep Thought said:

Eric Mc said:

The payment arrangements will not be any different to what happened before - except your company will receive the income net of PAYE and NI.

Out of curiosity, what would be the advantage of putting it in to your ltd company account rather than just directly in to your personal account?

There wouldn't, it would be paid to a personal account. Your ltd is redundant in an inside scenario. I think Eric has previously said (on another thread) that if you did use your ltd you could account for it within your company accounts.

[worsy]

mmm-five said:

Deep Thought said:

Yes, board level for the overall strategy, but i was meaning if they did it on a case by case basis - which is what HMRC propose companies do - it would ultimately be down to the HR department to making decisions.

I also think the board would take a steer from HR (presumably Head of HR)

Thats what i am seeing happening where i am anyway.

Ours has gone for the scattergun approach, and we've already have some contractors leave on the basis that they'd rather start something elsewhere ASAP, before they're asked to cover extra duties of someone else who's leaving.

I was lucky in one way, as I got a rate rise in a couple of years ago to take this into account, and no-one batted an eyelid back then...probably because there were so few doing so. Now it's going to affect about 1500 people.

They can't say they weren't warned though, as the initial letter went out 12 months ago to say that they were considering how best to resolve these issues, and offered plenty of people fixed-term FTE contracts instead. Some took them, some left, and some decided to stick it out on a LTD basis for as long as they could.

You're not thinking of staying on an inside contract though?

[Eric Mc]

worsy said:

Deep Thought said:

Eric Mc said:

The payment arrangements will not be any different to what happened before - except your company will receive the income net of PAYE and NI.

Out of curiosity, what would be the advantage of putting it in to your ltd company account rather than just directly in to your personal account?

There wouldn't, it would be paid to a personal account. Your ltd is redundant in an inside scenario. I think Eric has previously said (on another thread) that if you did use your ltd you could account for it within your company accounts.

Yes, some contractors may chose to retain their limited companies and continue to accept the payments through the limited company. IR35 doesn't and never has stopped that. All IR35 has always done is deny the limited company the opportunity to avail of the beneficial tax and NI treatments of personal income drawn from a limited company by the proprietor of the company that has always been, and still is, available to legitimate trading entities.

[Dr Jekyll]

A repost but worth it for anyone who hasn't seen it.
https://www.contractorcalculator.co.uk/satirical__...

[Deep Thought]

Dr Jekyll said:

A repost but worth it for anyone who hasn't seen it.
https://www.contractorcalculator.co.uk/satirical__...

[Eric Mc]

Deep Thought said:

Very good - to be read in the voices of Bird and Fortune.

[mmm-five]

worsy said:

You're not thinking of staying on an inside contract though?

I already am, and have been for 3 years, but increased my day rate by almost 40% to compensate.

They either rated me highly, or I was undercharging in the first place - either way I'm content.

[Deep Thought]

Eric Mc said:

Very good - to be read in the voices of Bird and Fortune.

Funnily, yes, thats the voices that were in my head reading that. They did that sort of thing brilliantly.

[worsy]

mmm-five said:

worsy said:

You're not thinking of staying on an inside contract though?

I already am, and have been for 3 years, but increased my day rate by almost 40% to compensate.

They either rated me highly, or I was undercharging in the first place - either way I'm content.

Considered advice appears to be not roll from outside to inside at same contract as a red flag to HMRC for retro tax.

[Deep Thought]

worsy said:

mmm-five said:

worsy said:

You're not thinking of staying on an inside contract though?

I already am, and have been for 3 years, but increased my day rate by almost 40% to compensate.

They either rated me highly, or I was undercharging in the first place - either way I'm content.

Considered advice appears to be not roll from outside to inside at same contract as a red flag to HMRC for retro tax.

He went inside IR35 3 years ago?

But yes definitely a red flag to simply flip for 5th April.

Whilst I think theres only a tiny risk of HMRC doing full blown investigations against contractors, they have in the recent past issued bulk letters to contractors who's company's have declared them inside IR35 telling them to either re-evaluate their current tax status and pay the appropriate tax or provide documented evidence of why they deemed themselves outside IR35 at the time.

I could definitely see those sorts of letters going out en masse.

Wont affect me at all, but i know of many contractors who are sleep walking in to this.

[worsy]

Ah, didn't read that

[mmm-five]

worsy said:

Ah, didn't read that

But IR35 was still being discussed on the contractor forums enough back then to make me worry that HMRC would come after me if I stayed on the old contract basis!

Hopefully the fact that it coincided with me changing from working for 3 end-clients, at 3 sites for various numbers of days a week each (schedule managed by me) to a full-time, 5-days-a-week, one end-client...and the role changing from a day rate for an agreed, specific deliverable (such as writing a manual to document a new helpdesk system) to a 'doing random stuff the 'boss' asks me for' contract helps.

It was either that, or take a 2 year, fixed-term FTE contract on about 50% (plus all the extra non-cash benefits of being an employee...such as holiday pay/sick pay/pension/shares/medical/death in service, etc.).

The only reason for doing the original job at a day rate, instead of billing them a set price for the work, was that I'd had experience of them changing the scope frequently and this was being written as the system was being built (I'd get the test case scripts and access to the dev system to take screenshots, etc.), so instead of trying to get another purchase order through for every piece of re-work (2 months for that, and then another 3 to get paid), I just agreed to send them an invoice every month with a daily breakdown (e.g. completed chapter numbers, revisions requested from whoever in the company, revisions due to the system being upgraded/changed).

Edited by mmm-five on Monday 13th January 11:17

[Autopilot]

Just to give some people hope, I thought I'd update you on the following. The private sector company I'm currently with deemed most roles (there is around 500 of us) to be inside IR35 and that's the stance they will take post April 2020. They have some people they would be doomed if they don't retain their services, so there's a smaller group of people they are trying to help put outside of IR35.

I for one won't hang around if an organisation are sorting jobs for the boys and I'm not in on it Because of this, I have had a quick look out there and have landed a new role (subject to paperwork). They have said the job is deemed to be inside IR35.....unless I would like to write a Statement of Works and quote for it. As this won't be a long contract, I'm not that fussed what I do as it's close to home so won't really have any overheads but will probably quote for it.

How has this come about? Well, a number of key staff have all been contractors and not only know what IR35 is, they also have the right mindset that I'm NOT an employee! The issue at my current place, not so much in the section I deliver services to, is that contractors get seen as employees and are therefore treated like them regardless. One of my fellow contractors was even told that he has to go to team meetings, been treated equally to staff etc etc so did say to him he needs to remind them he isn't staff.

[Deep Thought]

Autopilot said:

Just to give some people hope, I thought I'd update you on the following. The private sector company I'm currently with deemed most roles (there is around 500 of us) to be inside IR35 and that's the stance they will take post April 2020. They have some people they would be doomed if they don't retain their services, so there's a smaller group of people they are trying to help put outside of IR35.

I for one won't hang around if an organisation are sorting jobs for the boys and I'm not in on it Because of this, I have had a quick look out there and have landed a new role (subject to paperwork). They have said the job is deemed to be inside IR35.....unless I would like to write a Statement of Works and quote for it. As this won't be a long contract, I'm not that fussed what I do as it's close to home so won't really have any overheads but will probably quote for it.

How has this come about? Well, a number of key staff have all been contractors and not only know what IR35 is, they also have the right mindset that I'm NOT an employee! The issue at my current place, not so much in the section I deliver services to, is that contractors get seen as employees and are therefore treated like them regardless. One of my fellow contractors was even told that he has to go to team meetings, been treated equally to staff etc etc so did say to him he needs to remind them he isn't staff.

A role can be outside of IR35 though and not have a statement of works? That seems to be their differentiator there?

[Venturist]

In an Inside IR35 determination my understanding is that the income gets taxed at source and so it might as well get paid straight to my personal bank. This means if the company has anything it needs to fund such as:
- investment ie toward new side ventures yet to bear fruit
- ongoing bills
- dry periods with no income

The company will not actually have any money coming into it anymore, so I’d need to support it and supplement the money BACK in again, in the form of a loan(?) from me personally - is that right?