IR35 & Redundancy?

Here is a question regarding contractors working under IR35, paying an umbrella company to be boss...

Scenario:

Contract is coming to an end. Market conditions and Time of Year there is no work for some time. Umbrella company will not pay for employee not earning income.

Proposal:

Umbrella company makes employee redundant and hands them a P45.

Redundancy pay is not taxable. So the extra money can be used for things like paying the mortgage, food & electricity and if sufficient, retraining.

[northernladuk]

But you are only an employee of the umbrella while you are in contract. If you are out of contract you are not employed by them or something. Something like this was asked awhile ago so will see if I can find it.

[contractorcontractor]

P45

But you are only an employee of the umbrella while you are in contract. If you are out of contract you are not employed by them or something. Something like this was asked awhile ago so will see if I can find it.

My umbrella says I am an employee until they deliver a P45.

[northernladuk]

Ok all the threads I remember are people making themselves redundant from their LTD co not umbrella's so scratch that....


How do you plan on carrying out your proposal though? You can't force the umbrella to make you redundant. You can only make someone redundant when their role no longer exists or some terminology around that. Your role hasn't disappeared frm the umbrella, you are still a contractor and can fill the role when a new contract starts.

The thread above discusses relation between client --> agent --> umbrella and no real employment (or whatever it says in the article) which is the key. The umbrella isn't a hiring body in the true sense for redunancy issues etc. It also mentions that the umbrella isn't in a position to confirm redundancy or sacking which is an interesting point. Also if an umbrella made a contractor redundant they would be bound to certain rules about taking new people on to do the same work if they are making people redundant or something like that.

Understanding the contract between you and the umbrella would be a good start I think.

What may possibly fail here is the type of relationship you have with the umbrella, as it isn't an employee employer one in the true sense possibly.

You could also look at the process around redundancy as there are some criteria to fit first as well but am sure this won't be possible for reasons other than your eligibility. Never heard of anyone else doing it thats for sure.

[Robot]

[QUOTE=contractorcontractor;1208601]Scenario:

Contract is coming to an end. Market conditions and Time of Year there is no work for some time. Umbrella company will not pay for employee not earning income.


Why, if you are still their employee you’re entitled to NMW, up to the point they give you a P45 anyway.

*Problem, if they give you a P45 on the day the contract finished then this is the last place you worked and as such it becomes your permanent workplace and (at the point you knew this) you shouldn't claim for your travel expenses.

I believe this is the one (maybe the only) reason they will keep you on but not pay you NMW.

* Same problem arises for directors of limited companies, when they are closing down or moving to permanent employment.

[VectraMan]

Regardless of the legalities, it's in nobody's interest to have umbrellas work like this. If they have to start giving everyone full employee like rights with redundancy etc., then they'll have to charge a lot more, and ultimately keep back a lot of your money to pay for said redundancy. And redundancy has other restrictions, such as not immediately hiring somebody else to do the same job - not possible with the way umbrellas work.

[IR35 Avoider]

A lump sum on parting from your employer is only tax-free if you are not contractually entitled to it, i.e. it is essentially a gift.

All conventional umbrellas will have contracts with their employees whereby the employees are entitled to all money brought in over and above the umbrella fee entitlement, so there is no way an umbrella could pay tax-free redundancy. (Assuming they are not going to give you some of the fees back!)

[ASB]

A lump sum on parting from your employer is only tax-free if you are not contractually entitled to it, i.e. it is essentially a gift.

That is entirely true, but it is not true with respect to statutory redundancy. However there is of course only an entitlement to statutory redundancy after 2 years.

Of course, as you rightly point out, where is the money going to come from? [Bit like holiday pay]. It can only really come from the fees generated by the employee, though I do suspect some umbrellas may be potentially facing claims if they are not careful with retaining the funds to pay any statutory redundancy entitlement to the employee in the event of non renewal or similar after a 2 year period.