Inside PAYE rate vs Outside via Limited

[tl97]

Why don't you just use the Outside IR35 calculator on the same site which gives an direct comparison rather than multiply by some made up number and use a different calculator. It's apples and pears at best with out all that carry on. The numbers aren't the same.

Because their inside calculator assumes going through an umbrella with the employer NIC and umbrella fee deductions, which isn’t applicable for a direct PAYE rate.

[tl97]

Who's going to pay the employer's NI in this scenario? I.e. if it's going to be more expensive for the client/agency to give you the PAYE rate, why would they do it? Just out of the kindness of their hearts?

A PAYE rate is the figure reached once the client has paid employer NIC, so it’s already been marked down and reflective of that deduction that has already taken place.

[eek]

Because their inside calculator assumes going through an umbrella with the employer NIC and umbrella fee deductions, which isn’t applicable for a direct PAYE rate.

But again no PAYE rate is going to be identical to an outside IR35 rate.

An outside IR35 rate is going to be an assignment fee rate - i.e. before all Employer Employment costs are deducted... And once those costs are correctly deducted the PAYE rate will be 30% or so less than the outside IR35 rate.

[tl97]

But again no PAYE rate is going to be identical to an outside IR35 rate.

An outside IR35 rate is going to be an assignment fee rate - i.e. before all Employer Employment costs are deducted... And once those costs are correctly deducted the PAYE rate will be 30% or so less than the outside IR35 rate.

From experience, that’s not always the case…

[hobnob]

I've fed an Outside IR35 rate into ContractorCalculator's financial profile calculator. I've then taken the same rate as a PAYE rate, multiplied by 220 and entered it into a PAYE calculator.

I think we might be talking at cross-purposes here. If client A is offering you £400/day as an outside rate, and client B is offering you £400/day as a PAYE rate, then maybe these would work out about the same; in that scenario, client B is paying more for your services, because they're also covering the cost of employer's NI etc.

However, I can't see a scenario where a client would offer you £400/day and then leave it up to you to choose whether that amount is the outside rate or the PAYE rate.

[tl97]

I think we might be talking at cross-purposes here. If client A is offering you £400/day as an outside rate, and client B is offering you £400/day as a PAYE rate, then maybe these would work out about the same; in that scenario, client B is paying more for your services, because they're also covering the cost of employer's NI etc.

However, I can't see a scenario where a client would offer you £400/day and then leave it up to you to choose whether that amount is the outside rate or the PAYE rate.

Correct, two different clients

[hobnob]

The general mantra is that outside is always better than inside - and it usually is, but not necessarily in this scenario.

Ok, so going back to your original post, you're correct - you won't always get more money from an outside contract. A simple example would be if the outside contract paid £200/day and the inside contract paid £800/day. However, I don't know where the break-even point is.

[philgo]

Hi all,

I've fed an Outside IR35 rate into ContractorCalculator's financial profile calculator. I've then taken the same rate as a PAYE rate, multiplied by 220 and entered it into a PAYE calculator. Both monthly figures returned are around the same.

It seems that if you're on an outside IR35 rate, and you take the entire amount earned out of your limited company in the same tax year, there's not really any difference to if you earned it on a PAYE basis. Clearly there is a difference if you take smaller amounts out of the limited company in the tax year, or if the inside rate wasn't PAYE (i.e. brolly). The general mantra is that outside is always better than inside - and it usually is, but not necessarily in this scenario. Any thoughts?

Looking at the contractor calculator, the net income you receive is close but you are still way better off outside.

Example with a £500 day rate. Outside IR35 your net income is £6,156 (£0 expense, £8000 salary, withdraw all cash).
Summary of rates required to achieve £6,156 :
£500 - outside IR35 / off-payroll does not apply - net income is £6,156
£557 - inside IR35 + client pays their own tax bill = PAYE used - If no uplift net income is £5,772.
£637 - inside IR35 + you pay clients tax bill = umbrella used - If no uplift net income is £5,295.

Just comparing above net income figures, sounds like you are still way better off being outside.

Not mentioning all the benefits of being outside if you don't take all the money. expenses, taxes management, pension contribution, director loans, MVL, cash available for other investment etc... You basically can managed the cash you make how you need. And frankly I don't see the point of going outside if you are expecting withdrawing all the money all the time. That's a headache for nothing

[hugebrain]

Take the outside one, just out of self-respect.

Also when comparing don’t forget that you shouldn’t just compare the take home rates. As well as being better for you, it has the added benefit that it is worse for your enemies since you are reducing the amount of money (tax) that they get.