NI on Inside Contracts?

[willendure]

I have never had an inside IR35 contract which is why I do not really understand what the day rate means.

Suppose a contract is quoted Inside @ 500/day does the contractor pay the employers NI on that? So out of 10K you would earn in a month working 20 days, you might pay £2130 in PAYE, £1222 in employers NI, and £339 in employees NI (figures might be a little out but close enough).

Does it vary by contract with some advertisers quoting the rate inclusive of employers NICs, and some exclusive? With the inclusive rate being higher, I kind of assume they will always quote that, but I just don't know.

The reason I am asking is to know how to compare inside rates with permanent roles, assuming that rates quoted for a permanent roles definitely do not include employers NICs - the employer pays that bit.

Also permament roles include a certain level of mandatory pension contributions which is 8%, 3% from employer and 5% from employee. So when comparing with a permie rate, I should add an extra 3% on top to get the real rate?

[ladymuck]

There's a notion of an 'assignment rate' which is the grossed up value from which ErNI would be deducted. Some agencies state if the rate they're quoting is that, some don't. The only way to be certain is to ask.

Permanent roles definitely do not include the ErNI. Pension contributions are not mandatory - you can opt out of pension plans so I wouldn't include them, unless you're also planning to do salary sacrifice on the contract gig to bring down your NI bill.

[willendure]

Just wanted to note that after googling it I realize that the contractor never pays the ErNI, always the employer. But the ErNi can still be included in quoted rate in an ad, the 'assignment rate' as you describe. And its never clear on any ad whether its included or not is it? So I assume its more likely that it is included as that makes the rate look higher.

Yes, looking at salary sacrifice into pension. That is what I am figuring out in a spreadsheet accross outside, inside and permie, to see what levels of salary are equivalent in each way of working, and what level of pension contribution it takes in inside and permie roles to bring my total savings rate to the same level compared with outside.

Not sure why I would opt out of a mandatory 3% employer pension contribution if the law says I can have it? Or do you not get it if you opt to use a SIPP, its only for employer run schemes or something?

[Protagoras]

The employer always pays Employer NI and if you work an 'inside' engagement the employer will be an Agent or Umbrella Company.

Unless otherwise stated, I'd assume that Employer's NI and Apprenticeship Levy will be deducted from the day rate. For example, £500/day for 20 days gives the following on an Umbrella basis

Gross Contract Income	£10,000.00
% Pension	3%
Apprenticeship Levy	£ 39.43
Employer NI	£ 1,674.83
Employee NI	£ 620.96
Umbrella Margin	£ 100.00
Gross Salary Income	£ 7,885.75
Total Pension	£ 300.00

Probably no one would want to opt out of a 3% pension contribution, but this comes out of the fee income. It's an 'employer' contribution in name only.

It's remarkably difficult to compare contract and perm rates where there are other employment benefits e.g.sick pay, training, private healthcare.

What is clear is that when working via an Umbrella Company, salary sacrifice to pension avoids NI charges and is attractive where one's pension fund needs a top up. Of course, depending on age, there's risk that the 25% tax free pension lump sum may become unavailable.

Finally, yes, to compare pension contributions on an even basis you need to consider the total of employer and employee contributions.

[malvolio]

The employer always pays Employer NI and if you work an 'inside' engagement the employer will be an Agent or Umbrella Company.

Unless otherwise stated, I'd assume that Employer's NI and Apprenticeship Levy will be deducted from the day rate. For example, £500/day for 20 days gives the following on an Umbrella basis

Gross Contract Income	£10,000.00
% Pension	3%
Apprenticeship Levy	£ 39.43
Employer NI	£ 1,674.83
Employee NI	£ 620.96
Umbrella Margin	£ 100.00
Gross Salary Income	£ 7,885.75
Total Pension	£ 300.00

Probably no one would want to opt out of a 3% pension contribution, but this comes out of the fee income. It's an 'employer' contribution in name only.

It's remarkably difficult to compare contract and perm rates where there are other employment benefits e.g.sick pay, training, private healthcare.

What is clear is that when working via an Umbrella Company, salary sacrifice to pension avoids NI charges and is attractive where one's pension fund needs a top up. Of course, depending on age, there's risk that the 25% tax free pension lump sum may become unavailable.

Finally, yes, to compare pension contributions on an even basis you need to consider the total of employer and employee contributions.

I totally agree. You simply can't do a straight, meaningful comparison between day rate contracts and salaried employee, the list of variables is longer than most people realise, and the "calculators" make far too many assumptions to be of much use. Even the source of the funding is different, salaries come from revenue, contractors from programme budgets.

All you can do is find out the net to you from the gig and decide if that is affordable, taking into account stuff like zero expenses...

[sadkingbilly]

Shock Horror! - mr knowall doesn't know how basic contracting works!
quelle surprise.

[Protagoras]

In fairness, working on an 'inside' basis isn't really contracting, it's just better paid office temping, despite the tendency to describe umbrella workers 'contractors'.

Temps were always agency PAYE, so the matter of Employer's NI never arose. It only became a focus because the Government closed down the proper contracting industry for individuals and the 'umbrella' sector came into being.

[Stevep42]

Yeah, with inside IR35 it usually means the agency/umbrella will factor in employer’s NI before you see the quoted day rate. So if you’re told £500/day, that’s the gross you’ll be taxed on as an employee, you won’t then have to pay the employer’s NI out of it, that’s already priced in. What you’ll feel is just normal PAYE and employee NI. Comparing to perm jobs, yeah you’re right to add in the pension contribution difference and also remember you don’t get things like holiday/sick pay included, so the perm package can look smaller on paper but be worth more in practice.

[Protagoras]

To get a gross salary of £500/day would give an 'employer' a cost of about £646/day, the difference accounting for Employer NI and Apprenticeship Levy.

Given the significant difference, as ladymuck says, need to identify whether the quoted rate is or is not an 'assignment rate'.

[Assumes same pension etc as per my above example]

[willendure]

Yeah, with inside IR35 it usually means the agency/umbrella will factor in employer’s NI before you see the quoted day rate. So if you’re told £500/day, that’s the gross you’ll be taxed on as an employee, you won’t then have to pay the employer’s NI out of it, that’s already priced in. What you’ll feel is just normal PAYE and employee NI. Comparing to perm jobs, yeah you’re right to add in the pension contribution difference and also remember you don’t get things like holiday/sick pay included, so the perm package can look smaller on paper but be worth more in practice.

Really? You don't think the £500/day headline rate in a job ad will be the 'assignment rate' lady muck describes, which will include employers NICs? It could be either way and the few times I have talked to agents about inside roles they seemed not to know, or maybe were just playing dumb. I just think its likely the rate inclusive of emp NICs is generally what goes on an ad, since thats the better looking number.