Working in the public sector? An FAQ about IR35

[Lance]

Ermmm… You do realise that is tax evasion...?

[JohntheBike]

Correct on all counts. Pension was very good actually although I wasn't there long enough to use it. I was with Contractor Umbrella and their scheme was uncapped so could have put the entire allowed amount in. That would have made the whole gig very tax efficient. I am aware that is pretty unique though. I think they are the only one we've found so far that do that. Others are pretty basic.
Yes to payslips. Why would you think I wouldn't?

Actually, the odd thing is it was great, probably down to me fretting about my finances but I felt much better off getting the full amount in my bank every week. No fretting about the warchest, having to do my accounts, sending divis to my mum and girlfriends, no having to go in to their banks to transfer the divis back to me and all sorts. Quite enjoyed it to be fair.
I know in the long run it isn't efficient but it was a nice change.

OK, so your particular contract situation was acceptable to you. However, that may not suit everyone. I would welcome being paid a nett amount without the IR35 and Ltd. co. hassle, if that nett amount were to reflect what nett salary and benefits I would have been getting by now if I'd been able to remain in my last permie job.

However, I've never been offered such a structure and that would be extremely unlikely. My gross contractor income is only roughly the same as I would estimate my salary would have been by now. I was effectively DPM in my last permie job. We don't all enjoy these high daily rates that are bandied about here. So the effective cost to the client is less (and much less than my current client pays for such a role) whilst there are benefits for me.

When I was incurring travel and subsistence expenses, the only advantage I gained over a permie role, apart from being able to continue earning, was that I could split my contractor income through MyCo between myself and my wife, where she could benefit from using her personal allowance, as she wasn't in gainful employment. This structure suited the clients and myself, but not HMRC obviously. Hence my great hostility to all things IR35. I wasn't subject to the FTM issues as I was made redundant at 49, as part of a controlled shutdown of the employer's activities in the UK. So contracting was my only way to continue earning.

[malvolio]

Correct on all counts. Pension was very good actually although I wasn't there long enough to use it. I was with Contractor Umbrella and their scheme was uncapped so could have put the entire allowed amount in. That would have made the whole gig very tax efficient. I am aware that is pretty unique though. I think they are the only one we've found so far that do that. Others are pretty basic.
Yes to payslips. Why would you think I wouldn't?

Actually, the odd thing is it was great, probably down to me fretting about my finances but I felt much better off getting the full amount in my bank every week. No fretting about the warchest, having to do my accounts, sending divis to my mum and girlfriends, no having to go in to their banks to transfer the divis back to me and all sorts. Quite enjoyed it to be fair.
I know in the long run it isn't efficient but it was a nice change.

Ermmm… You do realise that is tax evasion...?

[northernladuk]

so I deduce then that the payments were made to your private bank account and not to you company and that you are effectively an employee of the brolly. So were the holiday, sick pay and pensions contributions attractive? Remember that organisations who have more than 50? employees must now provide for pension payments. Do you receive a payslip?

Correct on all counts. Pension was very good actually although I wasn't there long enough to use it. I was with Contractor Umbrella and their scheme was uncapped so could have put the entire allowed amount in. That would have made the whole gig very tax efficient. I am aware that is pretty unique though. I think they are the only one we've found so far that do that. Others are pretty basic.
Yes to payslips. Why would you think I wouldn't?

Actually, the odd thing is it was great, probably down to me fretting about my finances but I felt much better off getting the full amount in my bank every week. No fretting about the warchest, having to do my accounts, sending divis to my mum and girlfriends, no having to go in to their banks to transfer the divis back to me and all sorts. Quite enjoyed it to be fair.
I know in the long run it isn't efficient but it was a nice change.

[JohntheBike]

The choice was umbrella or agent PAYE. No LTD option on the table. I went brolly and the contractual terms are between agent and brolly. I signed an employment contract with the brolly

so I deduce then that the payments were made to your private bank account and not to you company and that you are effectively an employee of the brolly. So were the holiday, sick pay and pensions contributions attractive? Remember that organisations who have more than 50? employees must now provide for pension payments. Do you receive a payslip?

[northernladuk]

The choice was umbrella or agent PAYE. No LTD option on the table. I went brolly and the contractual terms are between agent and brolly. I signed an employment contract with the brolly

[JohntheBike]

Only if you are engaged through a LTD which is not the way to go as has been mentioned a number of times. Having the LTD in a chain where it is not needed is going to give rises to these WTF scenarios. Don't use the LTD and use the better options available and that problem has gone.

I think we need some clarification here. Unless I'm mistaken, the "contract", which is designed to protect the client from employment benefit claims, will be between the client/agency and the Ltd. co. of the contractor. So what will the "contractual" circumstances be if the engagement is ruled as inside? I guess the client/agency would want to maintain that lack of contractual nexus with the individual contractor. Will remuneration be paid directly to the contractor rather than the contractor's Ltd. Co.? What has happened in the PS? You say you've taken an inside engagement in the Public Sector, so perhaps you can clarify how you get paid.

[Maslins]

And what about the VAT? Do we still charge it? Does the agency then deduct it from the total and pass it on to the Ltd before deducting income tax and NI from the rest? It seem that on one side Ltd is still being treated by one government department (C&E) as business and expected to charge VAT, while on the other (IR) treats it as an employee. WTF?

Yeah you still charge VAT, client still pays it...but it's basically ignored from the payroll/IR35 side of things.

Eg invoice = £10k + £2k VAT = £12k
Let's say PAYE/NICs are £3k
Client pays your company £9k (being £10k + £2k - £3k)
You then pay £2k VAT over to HMRC as normal (FRS can still be used, but let's disregard this for now)
You're left with the £7k being invoice amount net of VAT and net of PAYE/NICs. That goes straight out to director.

Yes, it's daft. I think over time everyone will agree it's pointless, so we'll drift towards a world where inside IR35 contracts don't exist. You either have outside IR35 contractors, or you have umbrella (or of course permie) contracts.

[northernladuk]

It seem that on one side Ltd is still being treated by one government department (C&E) as business and expected to charge VAT, while on the other (IR) treats it as an employee. WTF?

Only if you are engaged through a LTD which is not the way to go as has been mentioned a number of times. Having the LTD in a chain where it is not needed is going to give rises to these WTF scenarios. Don't use the LTD and use the better options available and that problem has gone.

[Confounded]

We're processing a handful of these (public sector, inside IR35, sticking with Ltd Co).

And what about the VAT? Do we still charge it? Does the agency then deduct it from the total and pass it on to the Ltd before deducting income tax and NI from the rest? It seem that on one side Ltd is still being treated by one government department (C&E) as business and expected to charge VAT, while on the other (IR) treats it as an employee. WTF?