Inside IR35

[trying_to_survive]

Hello all,

Help please.

I have been on outside IR35 through my own LTD company - salary of approx £750 a month with no tax etc + the limit of upto 50000 on the remaining at approx. 8.75% tax (I think) as dividends. I have asked my account to stop the monthly salary of £750 for now from next month (new tax year April 2023) due to current job outside IR35 ending abruptly for a lot of us at the company. Reason for asking me to stop the monthly salary from my LTD company as I am not sure what my IR35 status would be for my next contract job...

I am potentially going on a contract inside IR35 - its not confirmed yet as I need to get the job first but want to get some info on the inside IR35 to move fast as and when I get one. Also to add I don't have much choice on inside or outside IR35 contract - would have preferred an outside one but market situation means I will be forced to work within IR35 (with another employer through an agent) to have employment going for me.

An umbrella broker has just advised me that I would be able to get 78% of my daily rate paid to my bank account direct as net. For example, say, if the daily rate is £400 the net return direct to my account would be £1560 net for a gross £2000 - this seems to be too good to be true!! Apparently there is an enhanced option that umbrella company uses that could be suitable for me.

As its my first time could someone please advise how best to proceed with this - any tips of speaking to any umbrella companies is also useful. For my part I just want the maximum return as possible as well as not in trouble with HMRC later down the line.

Thank you!

 

[Newchodge]

Hello all,

Help please.

I have been on outside IR35 through my own LTD company - salary of approx £750 a month with no tax etc + the limit of upto 50000 on the remaining at approx. 8.75% tax (I think) as dividends. I have asked my account to stop the monthly salary of £750 for now from next month (new tax year April 2023) due to current job outside IR35 ending abruptly for a lot of us at the company. Reason for asking me to stop the monthly salary from my LTD company as I am not sure what my IR35 status would be for my next contract job...

I am potentially going on a contract inside IR35 - its not confirmed yet as I need to get the job first but want to get some info on the inside IR35 to move fast as and when I get one. Also to add I don't have much choice on inside or outside IR35 contract - would have preferred an outside one but market situation means I will be forced to work within IR35 (with another employer through an agent) to have employment going for me.

An umbrella broker has just advised me that I would be able to get 78% of my daily rate paid to my bank account direct as net. For example, say, if the daily rate is £400 the net return direct to my account would be £1560 net for a gross £2000 - this seems to be too good to be true!! Apparently there is an enhanced option that umbrella company uses that could be suitable for me.

As its my first time could someone please advise how best to proceed with this - any tips of speaking to any umbrella companies is also useful. For my part I just want the maximum return as possible as well as not in trouble with HMRC later down the line.

Thank you!

I would want any enhanced option explained in full with detail of HMRC's agreement to it!

 

[IanSuth]

Hello all,

Help please.

I have been on outside IR35 through my own LTD company - salary of approx £750 a month with no tax etc + the limit of upto 50000 on the remaining at approx. 8.75% tax (I think) as dividends. I have asked my account to stop the monthly salary of £750 for now from next month (new tax year April 2023) due to current job outside IR35 ending abruptly for a lot of us at the company. Reason for asking me to stop the monthly salary from my LTD company as I am not sure what my IR35 status would be for my next contract job...

I am potentially going on a contract inside IR35 - its not confirmed yet as I need to get the job first but want to get some info on the inside IR35 to move fast as and when I get one. Also to add I don't have much choice on inside or outside IR35 contract - would have preferred an outside one but market situation means I will be forced to work within IR35 (with another employer through an agent) to have employment going for me.

An umbrella broker has just advised me that I would be able to get 78% of my daily rate paid to my bank account direct as net. For example, say, if the daily rate is £400 the net return direct to my account would be £1560 net for a gross £2000 - this seems to be too good to be true!! Apparently there is an enhanced option that umbrella company uses that could be suitable for me.

As its my first time could someone please advise how best to proceed with this - any tips of speaking to any umbrella companies is also useful. For my part I just want the maximum return as possible as well as not in trouble with HMRC later down the line.

Thank you!

I got out of the agency game but generally the more it looks too good to be true the more it likely is.

22% stoppages looks like basically no NI being paid which may have an impact on you going forward depending on your personal circumstances - you need to talk to an accountant and one that is not beholden to the umbrella company.

Umbrellas are in it for the £, years ago one (Giant) used to offer £100 personally in gift vouchers to any consultant who pushed a contractor in their direction - they were not doing that out of the goodness of their hearts

 

[trying_to_survive]

Thanks both.

If you have or anyone have any recommendations for which company I can use for someone in my situation that would be really helpful.

 

[gazelle]

As a fellow contractor, I feel your pain. 78% is way too good. The taxes are the same no matter which Umbrella you go with, the figures will vary due to how they calculate how many weeks holidays you take etc.
The Giant calculator is pretty good to give you an idea, but have been told by fellow contractors to avoid Giant.
I'm with PayStream and seemed to be pretty and I've also used NASA as well.
Both allow contributions to a SIPP of your choice.

The taxes will be the same, off your day rate you will have to pay Employers NI and Apprentice Levy plus the Umbrella Margin. What's left is your gross pay and from that you will have to pay Employee's NI and PAYE tax.

Welcome to the wonderful world of being taxed worse than an employee with none of the benefits of an employee!

 

[Newchodge]

As a fellow contractor, I feel your pain. 78% is way too good. The taxes are the same no matter which Umbrella you go with, the figures will vary due to how they calculate how many weeks holidays you take etc.
The Giant calculator is pretty good to give you an idea, but have been told by fellow contractors to avoid Giant.
I'm with PayStream and seemed to be pretty and I've also used NASA as well.
Both allow contributions to a SIPP of your choice.

The taxes will be the same, off your day rate you will have to pay Employers NI and Apprentice Levy plus the Umbrella Margin. What's left is your gross pay and from that you will have to pay Employee's NI and PAYE tax.

Welcome to the wonderful world of being taxed worse than an employee with none of the benefits of an employee!

Then why do it? I genuinely don't understand why anyone would use an umbrella company rather than being employed.

 

[gazelle]

Then why do it? I genuinely don't understand why anyone would use an umbrella company rather than being employed.

Can be many reasons:
pay is still higher
prefer being a contractor - you are there to do a certain job for a certain time and then move on - none of the bureaucracy of perm
prob hoping that the next contract will be an outside one
sometimes easier to get a contract than it is perm

Myself, I was open to both perm, inside and outside.
I had perm interview and failed to get the job.
I had a inside interview and got the contract - and it pays more than the perm.

 

[trying_to_survive]

Thank you!

 

[NicoJ]

Then why do it? I genuinely don't understand why anyone would use an umbrella company rather than being employed.

You don't always have that choice. Your choice then becomes taking an umbrella contract or having no work.

I agree with the posters on here, the more complicated the umbrella "scheme" seems the further I would keep away from it. They should also give you a breakdown of how the pay is made up, if they haven't or it doesn't make sense to you then steer clear.

 

[Newchodge]

Can be many reasons:
pay is still higher
prefer being a contractor - you are there to do a certain job for a certain time and then move on - none of the bureaucracy of perm
prob hoping that the next contract will be an outside one
sometimes easier to get a contract than it is perm

Myself, I was open to both perm, inside and outside.
I had perm interview and failed to get the job.
I had a inside interview and got the contract - and it pays more than the perm.

You can have a fixed term contract as an employee, that lasts until the project is complete.

However if. after all the deductions and accounting for the other benefits lost, the pay is still higher, what ewere you complaining about?

Welcome to the wonderful world of being taxed worse than an employee with none of the benefits of an employee!

 

[trying_to_survive]

Thank you!

Then why do it? I genuinely don't understand why anyone would use an umbrella company rather than being employed.

 

[gazelle]

You can have a fixed term contract as an employee, that lasts until the project is complete.

However if. after all the deductions and accounting for the other benefits lost, the pay is still higher, what ewere you complaining about?

Because it is grossly unfair to be taxed in this way, it should be an outside contract. Most of my contracts are in major cities: London/Greater London, Manchester, Leeds. I live in the east midlands and often have to stay over during the week. This incurs travel and accommodation costs. With outside, I can claim these as legitimate business expenses. However, now on an inside contract, these costs now have to come out of my net pay, which then doesn't make it financially viable.

So not only are we now taxed worse than an employee, we are also paralysed as to where we can work.

 

[UK Contractor Accountant]

have to pay Employers NI and Apprentice Levy

why Apprentice Levy?

 

[UK Contractor Accountant]

78% of my daily rate paid to my bank account direct as net.

seems a bit dodgy to me - might be using a tax avoidance (evasion?) scheme to increase take home %

dodddy expenses claims, loans, dividends, etc anything to disguise income that should be taxed & nicable

 

[trying_to_survive]

seems a bit dodgy to me - might be using a tax avoidance (evasion?) scheme to increase take home %

dodddy expenses claims, loans, dividends, etc anything to disguise income that should be taxed & nicable

Hi, yes - it might be dodgy.

I don't fully understand what he said about how this works - the only words I manage to capture is "loophole", "bonus" and "legitimate" - the brokers are called first4contractors. the rate we were discussing was £600 a day although its a illustrate figure we used for our discussions - apparently its perfectly ok to go through the enhanced scheme and the umbrella company is HMRC approved.

This the message I got from first4contractors in writing:


"You receive a salary from the umbrella provider which is a net payment after all tax, NI and statutory deductions have been made.

As an employee of umbrella you have access to a range of benefits and this include access to an advance facility which is a non-taxable payment in the first instance.

In regards to the breakdown as we are a broker and we have over 19 providers on our panel we can only generate net illustrations as we work with so many providers, as discussed and mentioned above you would get a payslip detailing the deductions every time you were paid."



Not sure what to do - on one hand its very tempting and thinking whats the worst that can happen, as I could do with the extra money if it definitely legitimate and on the other what if it isn't

 

[UK Contractor Accountant]

As an employee of umbrella you have access to a range of benefits and this include access to an advance facility which is a non-taxable payment in the first instance.

another disguised loan scheme

 

[Newchodge]

Hi, yes - it might be dodgy.


I don't fully understand what he said about how this works - the only words I manage to capture is "loophole", "bonus" and "legitimate" - the brokers are called first4contractors. the rate we were discussing was £600 a day although its a illustrate figure we used for our discussions - apparently its perfectly ok to go through the enhanced scheme and the umbrella company is HMRC approved.

This the message I got from first4contractors in writing:


"You receive a salary from the umbrella provider which is a net payment after all tax, NI and statutory deductions have been made.

As an employee of umbrella you have access to a range of benefits and this include access to an advance facility which is a non-taxable payment in the first instance.

In regards to the breakdown as we are a broker and we have over 19 providers on our panel we can only generate net illustrations as we work with so many providers, as discussed and mentioned above you would get a payslip detailing the deductions every time you were paid."



Not sure what to do - on one hand its very tempting and thinking whats the worst that can happen, as I could do with the extra money if it definitely legitimate and on the other what if it isn't

That raises too many red flags. They can't tell you what the actual deductions are until they are made because they have so many providers? Really? They must make a decision about which provider they are using, tell them to do that before you decide to use them.

As an employee of umbrella you have access to a range of benefits and this include access to an advance facility which is a non-taxable payment in the first instance.

What benefits, exactly? What is the non-taxable payment in the first instance. How much is it? What is it for? Why is it non-taxable?

Simple questions and their response should inform your decision about whether to use them.

 

[UK Contractor Accountant]

brokers are called first4contractors

I bet offshore IOM - hides under a virtual office address in London

Company with same name was dissolved back in 2016 - there are also a few connected companies.

Looking for some information - Contractor UK Bulletin Board

For discussions relating to enquiry letters being sent out by HMRC.

forums.contractoruk.com

 

[trying_to_survive]

I bet offshore IOM - hides under a virtual office address in London

Company with same name was dissolved back in 2016 - there are also a few connected companies.

Looking for some information - Contractor UK Bulletin Board

For discussions relating to enquiry letters being sent out by HMRC.

forums.contractoruk.com

good you spotted - Cheers for that - I will be avoiding them!.

If I get the job - I might just go for Paystream like Gazelle said; safe bet regardless of it being a big tax, margin etc.

 

[gazelle]

good you spotted - Cheers for that - I will be avoiding them!.

If I get the job - I might just go for Paystream like Gazelle said; safe bet regardless of it being a big tax, margin etc.

If you can afford to you could put some monies away in a SIPP - saves on Employers NI and Employees NI as well as PAYE tax. Think you can achieve something like keeping 80%. Use the calculator on Giant to adjust SIPP contributions.

There are other things to reduce income tax like SEIS/EIS but these carry risk and I'm only scratching the surface on these myself to try and understand them.

 

[trying_to_survive]

If you can afford to you could put some monies away in a SIPP - saves on Employers NI and Employees NI as well as PAYE tax. Think you can achieve something like keeping 80%. Use the calculator on Giant to adjust SIPP contributions.

There are other things to reduce income tax like SEIS/EIS but these carry risk and I'm only scratching the surface on these myself to try and understand them.

Thanks - sorry - what is Giant and I can't find them on google ? Link please?

 

[gazelle]

Thanks - sorry - what is Giant and I can't find them on google ? Link please?

It won't allow me to post links.

If you google Giant Pay Umbrella - it should be the first non-sponsored link

They've got a nice calculator at the bottom of the page

 

[trying_to_survive]

thanks

 

[IanSuth]

why Apprentice Levy?

Because the umbrella employs enough through itself to have to pay apprentice levy as and it shoves all costs onto the contractor...

I worked in recruitment - i hated contract, we did as little as possible (and stopped all new contracts when ir35 came in) the worst part was that most clients wanted the agency to indemnify them against any future charges arising through a contract being deemed inside ir35 when it had been treated as outside.

That is such a unquantifiable potential (and uninsurable) liability that agencies will do all they can to avoid the possibility - one easy solution is shove via an umbrella and let that extra intermediary take the risk (and of course a bit more of the margin between contractor take home and client gross charge)

But on average i don't think a lot of contracts are really contracts they are actually either PAYE temp jobs or fixed term employment contracts. Def at the lower end there is no reason or justification for a coalface helpdesk person to be on a psc ltd contract

 

[trying_to_survive]

I have looked at the pay calculator on Giant and they are roughly equivalent to what Paystream offers - the employer and employee national insurance is an absolute joke - combined it looks to be around 20% of the income just thrown away on top of PAYE -

I don't mind the PAYE to an extent but the national insurance - I don't know why this thing exist - you can bring the national insurance down if you are willing to volunteer for pension. Increasing the amount on voluntary pension decreases the TAKE HOME pay but increases the overall amount that is set aside for the FUTURE.

Overall I now see why IR35 is poor in comparison to permanent contract but as you say its a temporary measure - I can't imagine anyone would be want to spend too long within IR35.