Outside IR35 contract, with valid SDS, but being paid via umbrella on PAYE?

[sirPorkPie]

Hiya ... struggling to find much on this as search terms bringing up all sorts of false positives!

I started a contract 3 months ago. Upfront, it was an outside IR35. SDS complete and verified. All good there. Also not first outside ir35.

But I failed due diligence with agency, because, 6 years ago, I had a ltd. automatically struck off with no accounts filed, because it never traded. I may have been advised wrongly at the time, but I was told not to appeal a compulsory strike off unless I had grounds to. But, due to no trade, I didn't. I was told it was no big deal, in grand scheme.

As a result of above due-dil failure, I was told I'd be paid via an umbrella, and that the umbrella would withhold funds for NI and PAYE. Role wasn't redefined as inside ir35, but from payment perspective it's treated as if it were.

To be honest, I'm largely OK with that. I'd have paid taxes etc. anyway. But what this does do, is remove ability to use gross cash flow for relevant expenses and account for them accordingly. Instead, I need to pay for expenses out of net, and claim them back annually - if I'm able to at all. The situation is quite unfortunate, especially as travel is a big part of the role.

Whilst I appreciate the agency is probably just trying to protect themselves (?) from a dodgy outside ir35er, I wondered if there were any grounds I could argue from? Some questions I'm trying to answer to hone into answer...

- Is how you're paid largely detached from IR35 status, as long as tax is treated accordingly. e.g. an outside IR35 can be paid direct to ltd. in gross OR can choose to receive via umbrella, who withhold NI and PAYE, and otherwise treat arrangement as if inside IR35?
- If so, can an agency dictate how payment is made?
- Is my umbrellas refusal to pay expenses likely a limitation on their ability to with-hold PAYE and NI but distinguish someone as outside IR35?
- I can't be the first person to fail a due-dil from agency in outside IR35 status. Any experiences to share?

[Fred Bloggs]

I see this is the second of the two threads started by the OP asking about claiming expenses.

As an employee, you're going to find the rules for claiming expenses are quite limiting. Especially since this is the first role you have done through this brolly (your employer).

In your shoes I would be looking to pay as much as you can afford into your pension. If possible, by salary sacrifice. That's the most generous expense you're ever likely to claim.

[hobnob]

Looking at your questions, it is certainly possible to get paid via an umbrella company for an outside IR35 contract. Some people might choose that, e.g. if they don't want the hassle/responsibility of being a company director (especially when they're starting out). In other cases, a client might put a blanket ban on PSCs, i.e. they'll force contractors to use umbrella companies.

If you wanted to be paid through a limited company then that company would need to exist. I'm not quite clear on the due diligence aspect of this; is the agency just saying that you don't have a limited company, and therefore you'll need to use an umbrella instead? Have you tried to create a new limited company? Have you been barred from acting as a director?

[northernladuk]

- Is how you're paid largely detached from IR35 status, as long as tax is treated accordingly. e.g. an outside IR35 can be paid direct to ltd. in gross OR can choose to receive via umbrella, who withhold NI and PAYE, and otherwise treat arrangement as if inside IR35?

Yes, as long as tax is paid there are multiple options. For example. You can be paid in to a LTD if you are inside or outside. Problem is agents won't pay inside in to LTD's as there is a responsibility on them to make sure tax is paid or something so they just wont do it.
You can go for brolly for inside or outside. Makes no difference as you are employee and you'll get the same money.
You can also go PAYE via agency for those that offer it. They are all just vehicles to process payment. Some vehicles are the preferred way and others aren't.

- If so, can an agency dictate how payment is made?

It's the engagement that is the fundamantal thing. If you are inside they engage you via an umbrella as an employee, if its outside they pay your LTD gross. Your LTD handles payments one way and the brolly another and then it finally lands with you. So it's not the agency dictating how payment is made, it's them paying the type of engagement you have.
They can also dictate the engagement but that's a pretty poor way of doing business generally. If they wanted they could say every contractor has to go via brolly but no one would ever use them if they did that.

- Is my umbrellas refusal to pay expenses likely a limitation on their ability to with-hold PAYE and NI but distinguish someone as outside IR35?

No, you just can't. Period. No business expenses for employees. Google will tell you why. Your IR35 status is irrelevant when you are through a brolly. You are an employee so will be treated and taxed as employee.

[sirPorkPie]

I see this is the second of the two threads started by the OP asking about claiming expenses.

As an employee, you're going to find the rules for claiming expenses are quite limiting. Especially since this is the first role you have done through this brolly (your employer).

In your shoes I would be looking to pay as much as you can afford into your pension. If possible, by salary sacrifice. That's the most generous expense you're ever likely to claim.

You're right, but to be fair, my first post was more a "I'm a greedy gary. How can I receive my income AND ask for the client to pay for expenses separately"

whereas this is more, "being outside IR35 gives you a gross amount, which you can utilise for some expenses, and account accordingly. But agency are insisting they pay me money as if I was inside IR35"

Good advice on pension, all the same.