Public sector IR35- move to fixed term contract? Advice required urgently kind people

[Blackbird17]

Hi All,

Thank you all for your advice - I know I shouldn't feel responsible and I try not too - but it's hard when you have a good relationship with the team and know what the fallout will be!

update!

my agency queried the PSC decision which they considered - answer has come back still inside IR35.

They have offered me a FTC at the same daily rate as current contract new JD and Job Title, holiday pay sick etc, not bad offer- but obviously no expenses and more tax.

Have been in contract for 22 months and so loss of expenses not too much of an issue.

Other alternative is umbrella or of course hand in notice.

Comments please?

[LondonManc]

Hi All,

Thank you all for your advice - I know I shouldn't feel responsible and I try not too - but it's hard when you have a good relationship with the team and know what the fallout will be!

update!

my agency queried the PSC decision which they considered - answer has come back still inside IR35.

They have offered me a FTC at the same daily rate as current contract new JD and Job Title, holiday pay sick etc, not bad offer- but obviously no expenses and more tax.

Have been in contract for 22 months and so loss of expenses not too much of an issue.

Other alternative is umbrella or of course hand in notice.

Comments please?

As per my calcs the other day, FTC is cheaper than umbrella and you've got holiday and sick pay.

[northernladuk]

Hand notice in and do something else. 22 months is a good run. New gig, reduce your chances of retro investigation and enjoy the change.

BTW you'd be losing your expenses anyway as you'll be over the 24 month rule... Unless your contract has over 2 months to go and you shouldn't be claiming anyway.

[Yorkie62]

I have just been reading a NHS ir35 thread on LinkedIn. Judging by the comments from locum Dr's and nurses and some 'NHS sub contract managers' it is amazing the lack of understanding of ir35 in this sector and what people believe places them outside. Sub-contractors with the word manager complaining that the trust has put them on a' substantive fixed term contract' because it was the only way they felt safe. They have hung the guy out to dry for a retrospective tax grab and he doesn't realise it.

[SueEllen]

I have just been reading a NHS ir35 thread on LinkedIn. Judging by the comments from locum Dr's and nurses and some 'NHS sub contract managers' it is amazing the lack of understanding of ir35 in this sector and what people believe places them outside. Sub-contractors with the word manager complaining that the trust has put them on a' substantive fixed term contract' because it was the only way they felt safe. They have hung the guy out to dry for a retrospective tax grab and he doesn't realise it.

Well at least you are less likely to be a target with people like that around. Oh and you can't warn some people so don't waste your time doing so...

[eek]

I have just been reading a NHS ir35 thread on LinkedIn. Judging by the comments from locum Dr's and nurses and some 'NHS sub contract managers' it is amazing the lack of understanding of ir35 in this sector and what people believe places them outside. Sub-contractors with the word manager complaining that the trust has put them on a' substantive fixed term contract' because it was the only way they felt safe. They have hung the guy out to dry for a retrospective tax grab and he doesn't realise it.

Not if he's on a fixed term contract directly with the trust. He will disappear off the agency reporting system and that may protect him for a bit as he could argue his job changed and he went to PAYE...

[Blackbird17]

Can I ask what is the real risk of a retro is if I have a new JD and job title and move over to a FTC? this contract is local and as I've been there for 22 months I wouldn't get expenses after May anyway?

Maybe I'm clutching at straws

[northernladuk]

Can I ask what is the real risk of a retro is if I have a new JD and job title and move over to a FTC? this contract is local and as I've been there for 22 months I wouldn't get expenses after May anyway?

Maybe I'm clutching at straws

I think you need to be careful here. If your last contract takes you to 24 months you shouldn't have been claiming any expenses for the last contract at all.

[WordIsBond]

Hi All,

Thank you all for your advice - I know I shouldn't feel responsible and I try not too - but it's hard when you have a good relationship with the team and know what the fallout will be!

update!

my agency queried the PSC decision which they considered - answer has come back still inside IR35.

They have offered me a FTC at the same daily rate as current contract new JD and Job Title, holiday pay sick etc, not bad offer- but obviously no expenses and more tax.

Have been in contract for 22 months and so loss of expenses not too much of an issue.

Other alternative is umbrella or of course hand in notice.

Comments please?

As you note, the 22 months means you were going to be losing expenses anyway. So, that is important in comparing your current contract to another contract (where you'd have expenses), but not in comparing your current contract to what they are offering.

So let's talk about FTC at the same daily rate vs current contract.

First, I presume that means THEY are going to pay employer NI. You get holiday and sick pay. Let's keep you healthy and just talk about the holiday pay, that's 28 days a year, so effectively a better than 10% increase, AND they pay employer NI. Not bad, it's the employer's NI that makes things painful and it sounds like they are eating that.

You pay employee NI. 12% up to the threshold, then 2%. For income below around £40K, that's about break even compared to getting holiday -- a tax hit that basically cancels what you gain with the holiday. For income above the threshold, the tax hit is tiny compared to what you are getting in holiday pay.

But then there is income tax. For income below £45K, you have income tax at 20%, compared to corporation tax at 20% AND dividend tax. That means income tax is actually less, on FTC, for income below £45K. (NI is higher, but as I said, that's cancelled by holiday pay.) For income above £45K, you move to higher rate band, which means income tax is 40%, but dividend tax is higher, too. You STILL pay lower tax on FTC with income tax vs CT & Div tax. And by the time you hit higher rate, NI is only 2%. So you are much better off. So why doesn't everyone want FTC?

1. Simply, not everyone gets the offer you got -- the same rate plus holiday pay plus them paying employer NI. Most would say if they are giving you holiday pay and paying NI that you should get a lower rate. This is a sweetheart deal.
2. You lose the chance to defer some of your income and avoid higher rate tax. If you are a LtdCo, you don't have to pay yourself dividends to go into higher rate. You can retain the money in your company and take it in a year when you don't work much (by choice or because you just don't find a contract). You lose flexibility, and that costs you. But, on the other hand, under FTC the tax is paid, the money is in your pocket, you don't have to worry about dividend tax rates going up or MVL being hit with higher taxes, etc.

Even so, in most cases, it seems to me that the offer of paying employer NI AND holiday and paying the same day rate as they'd pay a LtdCo contractor is a great offer, and one I'd almost always recommend.

In your case, there's one more factor -- the risk that HMRC looks at it, and says, "You should have been FTC all along, obviously. So IR35 applies." That could be painful. 22 months of IR35 liability wouldn't be nice. I don't know, but I personally think the risk of that is not all that high, if you are on a completely different contract (FTC vs LtdCo contract) and not through the agency. If you have TLC35 to protect against that risk, you probably should jump at this offer. If you don't, it's a harder call, because there is a risk here.

There's also the risk of not finding another contract. So you have to think about that, and how much reserve you have.

But I think your client has made you a more than fair offer. Deciding whether to take it depends on balancing risks of retroactive IR35 investigations vs risk of not finding another client vs the benefit of being able to take T&S expenses on a new contract. Too many unknowns / variables for anyone here to really give you an answer, but those are some of the considerations.

[northernladuk]

As you note, the 22 months means you were going to be losing expenses anyway. So, that is important in comparing your current contract to another contract (where you'd have expenses), but not in comparing your current contract to what they are offering.

22 + 2 more to go = 24. Not only is he going to lose them he's going to have to pay all the ones back from his last renewal.