How do you calculate IR35 take home pay when calculators contradict each other?

[sezchwarn]

I'm trying to work out for myself what Inside vs Outside IR35 looks like in terms of take-home pay because there don't seem to be reliable sources online.

Consider Inside IR35 and £450 per day; contractorcalculator.co.uk tells you you'll take home £4500 a month. ITcontracting.com says £5000 and mentions Empoyers NI. Other websites say you don't pay Employers NI, only employee NI. Some say you get to take 5% off for expenses, others say not.

So they all contradict each other. Isn't it their job to get this right? It seems like they've put next to no effort into researching it properly.

What's the truth?
My calculations are on £450 per day, inside IR35, you get £102k take home (assuming 228 days per year). And on that, around £28k personal tax and £6k employee NI. Meaning a take-home of £68k or £5.6k per month.

Have I got it right?

[sadkingbilly]

that you LPM1 ?

[ladymuck]

Depends on whether the £450 is the assignment rate or gross rate.

Have you factored in umbrella costs or are you expecting to be on agency payroll? Are you intending to pay anything into a pension?

[hobnob]

First up, I recommend reading through the articles in the right-hand margin, particularly the ones for IR35.

Also, bear in mind that the new budget is on Wednesday (15th March), and that will give you more accurate figures for the next financial year (e.g. tax bands).

Take home pay for an outside IR35 contract depends on various factors:
* Are you planning to drain all available money out of the company account, or leave a float (warchest) to cover you when you're on the bench?
* What expenses does your limited company have (e.g. accountancy fees and software licensing)?
* How do you want to split your income between salary and dividends?

For an inside contract, you should get a Key Information Document from the agency. In particular, the assignment rate will include employer's NI and the apprenticeship levy, whereas your gross pay is what's left after that. See:
Working through an umbrella company - GOV.UK (www.gov.uk)
So, in your example of £450/day, you need to know which figure that is.

In my experience, umbrella companies tended to overestimate the amount of income tax that I'd owe by the end of the year, so I had to claim a rebate via my SATR. It all evens out in the end, but you might not get the predicted take-home pay each month.

The bit about 5% expenses is very out of date, so ignore that. Basically, if you're inside IR35 then you can't claim expenses (unless the client will reimburse you).

Pension contributions are another factor which is relevant to inside and outside contracts, but that's for you to decide.

[eek]

For an inside contract, you should get a Key Information Document from the agency. In particular, the assignment rate will include employer's NI and the apprenticeship levy, whereas your gross pay is what's left after that. See:
Working through an umbrella company - GOV.UK (www.gov.uk)
So, in your example of £450/day, you need to know which figure that is.

even the Government have admitted that Key Information Documents don't work.

[ladymuck]

even the Government have admitted that Key Information Documents don't work.

Great, and did they come with a solution to the problem that is entirely of their own making? Thought not.

[eek]

Great, and did they come with a solution to the problem that is entirely of their own making? Thought not.

I've heard that guidance is coming that will make things clear - including things like the Key Information Document must be based on the agency rate and not a generic minimum wage or similar.

It will also need to be provided by the agency directly.

[eek]

The bit about 5% expenses is very out of date, so ignore that. Basically, if you're inside IR35 then you can't claim expenses (unless the client will reimburse you).

Even then unless the umbrella agrees thew payment is an expense it could be treated as income on which PAYE tax is due - double / triple check before agreeing any contract where expenses are being paid.

[northernladuk]

What's the truth?
My calculations are on £450 per day, inside IR35, you get £102k take home (assuming 228 days per year). And on that, around £28k personal tax and £6k employee NI. Meaning a take-home of £68k or £5.6k per month.

Have I got it right?

There isn't one and we haven't managed to get anything thats even remotely accurate due to many factors people negate to factor in when asking us. We've been through this a ton of times so can't really help. Personally I'd look at other factors when deciding which to take. It's pretty rare that two gig are exactly the same and rate/pay is the only differentiator.

[northernladuk]

And maybe check which part of the forums you are posting in. As one glance will tell you there isn't a single professional post in the his section, for a good reason.

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