Landed a 3-month contract - IR35 problem. How much £££ would I lose?

[slatt]

Would it be wise to just be open with them about it - or just take the job, do my 3 months on good terms, and then go elsewhere?

Be open and try to negotiate a better rate, but if they wont budge then only you can answer whether you should take it or not.

it all depends on whether you'll spend the next three months twiddling your thumbs and spending your savings, or will you get another offer in a day or twos time and head off to bigger and better things.

For me, if its quiet I'll take most jobs and just chalk up the lower paid stuff to experience and get my name out to new customers who may think kindly in the future and be willing to pay closer to my standard rate.

But if you're happy to (and can afford to) sit around waiting then that's perfectly fine too

[kal]

From a personal point of view I would avoid public sector contracts if at all possible in the current climate especially in light of other recent posters reporting declarations they are being asked to sign, not worth the hassle IMO.

[jamesbrown]

95% of the income from the contract would need to be paid as salary, and how much tax you pay depends on your other personal income in that tax year. It's no worse than if you were an employee, in fact slightly better.

You can reduce that 95% too, and pension contributions are a good way of doing that. If you can afford it, chuck a big lump of the income into your pension and that way it won't be taxed as salary.

Could you remind me how the company's liability (Employer's NI) is handled in a deemed-payment scenario? I assume this doesn't change, only the ability to reduce it disappears. Just curious, as the overall liability (personal/company) is relevant here. Also, the Employment Allowance cannot be claimed against NICs.

[Contreras]

I could be earning 20%+ less a month on this contract.

Not quite that much, I'll bet.

3 months @ £300/day, say £18k after days off.

Deduct allowable expenses, say £500/mo., --> £16.5k

If IR35 caught then 95% to be taxed as salary --> £15.7k

£10k personal allowance --> £5.7k

Stuff £1k/mo. into a pension --> leaves £2,700 subject to tax/NI.

Options:
- Ignore the IR35 review and treat it as outside. Will Hector bother?
- Negotiate a better rate with the agency now the contract is reviewed.
- Wait on the bench. Being immediately available can mean a better rate.

Better than sitting on the bench? That's up to you.

My main consideration would be whether the contract is likely to extend beyond the 3 months.

[ForBajor]

Be open and try to negotiate a better rate, but if they wont budge then only you can answer whether you should take it or not.

it all depends on whether you'll spend the next three months twiddling your thumbs and spending your savings, or will you get another offer in a day or twos time and head off to bigger and better things.

For me, if its quiet I'll take most jobs and just chalk up the lower paid stuff to experience and get my name out to new customers who may think kindly in the future and be willing to pay closer to my standard rate.

But if you're happy to (and can afford to) sit around waiting then that's perfectly fine too

Well in this case I think it would be better to take this contract than sit around, provided I'm on a week's notice. The client already suggested it might be possible to secure a higher rate for me in the future during the interview, as they realise they are getting a good deal.

I think it may take another couple of weeks to land another role, so I would stand to lose 2 weeks wages at least here - and even at £240/d that's going to cover my living costs for just over a month. Every months work at the lower rate buys me two months of living costs basically.

[ForBajor]

Not quite that much, I'll bet.

3 months @ £300/day, say £18k after days off.

Deduct allowable expenses, say £500/mo., --> £16.5k

If IR35 caught then 95% to be taxed as salary --> £15.7k

Stuff £1k/mo. into a pension and that leaves ~£2700 subject to tax/NI after personal allowance.

Options:
- Ignore the IR35 review and treat it as outside. Will Hector bother?
- Negotiate a better rate with the agency now the contract is reviewed.
- Wait on the bench. Being immediately available can mean a better rate.

Better than sitting on the bench? That's up to you.

My main consideration would be whether the contract is likely to extend beyond the 3 months.

The agency have just forwarded me an email to sent to my IR35 legal advisor. This might change things - might not.

I reckon I'm going to go for this and see what my accountant can do. It's better to take this, get a good reference with the client, and move on after 3 months. Sitting on the bench is something I can afford to do - but I could be earning. The location for this contract is ideal (zero travel expenses - I can cycle).

[Clare@InTouch]

Could you remind me how the company's liability (Employer's NI) is handled in a deemed-payment scenario? I assume this doesn't change, only the ability to reduce it disappears. Just curious, as the overall liability (personal/company) is relevant here. Also, the Employment Allowance cannot be claimed against NICs.

You can't claim the Employment Allowance on a deemed payment calculation, but you can claim it on an actual salary. All you therefore need to do is pay an actual proper salary through the year of at least £23,000 and you'll get the full £2k.

Employer's NI still needs to be paid as normal otherwise, although it's based on the deemed salary amount. So reduce the deemed amount by pension contributions and travel expenses, and the Employer's NI goes down accordingly.

[Clare@InTouch]

The agency have just forwarded me an email to sent to my IR35 legal advisor. This might change things - might not.

I reckon I'm going to go for this and see what my accountant can do. It's better to take this, get a good reference with the client, and move on after 3 months. Sitting on the bench is something I can afford to do - but I could be earning. The location for this contract is ideal (zero travel expenses - I can cycle).

You can claim 20p per mile for cycling

[jamesbrown]

You can't claim the Employment Allowance on a deemed payment calculation, but you can claim it on an actual salary. All you therefore need to do is pay an actual proper salary through the year of at least £23,000 and you'll get the full £2k.

Employer's NI still needs to be paid as normal otherwise, although it's based on the deemed salary amount. So reduce the deemed amount by pension contributions and travel expenses, and the Employer's NI goes down accordingly.

Right, that's what I thought. Ta

[sal]

Not quite that much, I'll bet.

3 months @ £300/day, say £18k after days off.

Deduct allowable expenses, say £500/mo., --> £16.5k

If IR35 caught then 95% to be taxed as salary --> £15.7k

£10k personal allowance --> £5.7k

Stuff £1k/mo. into a pension --> leaves £2,700 subject to tax/NI.

Options:
- Ignore the IR35 review and treat it as outside. Will Hector bother?
- Negotiate a better rate with the agency now the contract is reviewed.
- Wait on the bench. Being immediately available can mean a better rate.

Better than sitting on the bench? That's up to you.

My main consideration would be whether the contract is likely to extend beyond the 3 months.

Nice calculation, but it assumes 0 income from other sources for the rest 9 months of the year...

Your best bet is to work this contract out, swallow the additional tax burden and let it serve as a reminder for the rest of your career. If there is a potential for extension negotiate for higher rate to offset the tax burden, or walk to another gig.