IR35 - Contracts for government and private during the same tax year

[gables]

Caveated with all that's been said, this calculator can give you a rough indicator: Contractor Umbrella calculator

[malvolio]

Sheesh. Back to square one then. I believe Mal has a message for you. I am sure he'll be happy to take the time to re-iterate it for you.

I rather doubt that...

[northernladuk]

I am not naive, I know that you cannot simply calculate a contractor income as if it were a permanent salary.

Ah. We've just about got there.

What I need though is the formula to calculate it,

Oh... erm...

if you compare in and out IR35 on a three months contract, and assume that every other contract in the tax year will be outside IR35.the difference of net is not very big.

Sheesh. Back to square one then. I believe Mal has a message for you. I am sure he'll be happy to take the time to re-iterate it for you.

[adrdilauro]

Hi guys, thanks for your messages.

I needed to know one specific thing, and it's what Malvolio has written.

I am not naive, I know that you cannot simply calculate a contractor income as if it were a permanent salary. What I need though is the formula to calculate it, and in case of IR35 I didn't find it because most forums are about how to avoid it, not what to do if you are in it.

By the way, to share my first impression, if you compare in and out IR35 on a three months contract, and assume that every other contract in the tax year will be outside IR35, the difference of net is not very big.

[malvolio]

What's the long answer?

It's an obvious question for a permie to ask about contracting. Sadly, it's also a meaningless question: if contracting income were linear, in the same way as a salary is, then it might have some meaning, but since contracting income isn't linear, then you can't compare them.

You will probably earn more take home as a contractor. How you get to work out how to do that will be different for everyone, depending on experience (both technical and as a contractor), sector, location, seniority, specialisation, market demand and a dozen other variables, before even getting into how many billable days you do and whether or not IR35, pensions and expenses come into the equation.

So perhaps a sticky is needed: "Thinking about asking how much you will earn as a contractor? Please don't, we can't tell you and you will look naïve for asking. JFDI if you've got the balls and stop asking unanswerable questions".

[craigy1874]

Here we go again....

The quick answer for IR35 is to take the gross income from your caught contract, deduct expenses - not travel and subsistence, that's disallowed, but accountancy and pension mainly - then take off 5% of the balance and pay full PAYE and both NICs on the 95%. Whatever is left goes into your personal bank account. What little is left in the company is liable for CT.

(salary / 1000 = hourly rate) is the standard conversion rate. If you use the calculators (there's lots of them out there) ignore expenses and you'll get a good approximation. But please don't try and translate a salary into a contract payment; it will only ever be a rough approximation due to all the variables.

Or use an umbrella until you've had time to learn how it all works and whether or not you can cope with it.

What's the long answer?

[malvolio]

Here we go again....

The quick answer for IR35 is to take the gross income from your caught contract, deduct expenses - not travel and subsistence, that's disallowed, but accountancy and pension mainly - then take off 5% of the balance and pay full PAYE and both NICs on the 95%. Whatever is left goes into your personal bank account. What little is left in the company is liable for CT.

(salary / 1000 = hourly rate) is the standard conversion rate. If you use the calculators (there's lots of them out there) ignore expenses and you'll get a good approximation. But please don't try and translate a salary into a contract payment; it will only ever be a rough approximation due to all the variables.

Or use an umbrella until you've had time to learn how it all works and whether or not you can cope with it.

[SueEllen]

Thank you all for your replies.

There is another thing that might seem silly, but I really don't find any clear information online. What is exactly the algorithm to calculate how much I have to pay on a IR35 contract? I find a lot of calculators where you put a lot of data, they ask you how much you intend to deduct from tax, how many weeks you work, but I simply want to know which percentages you have to pay in the simplest case, when I earn X gross and there is nothing to deduct.

Basically, I am quitting my permanent job to become a contractor, and right before leaving my boss offered me to hire me as a contractor for three additional months. If I understand correctly, there is no way to make this contract fall out of IR35, because I have been working as employee for this company for 2.5 years.

I'll get 475 a day for a total of 62 days = 29.450. How much do I have to pay of tax + NI, out of that amount? I want to do the calculation as if 29.450 were my whole PAYE salary this year, because after this contract I plan to only get contracts outside IR35 and pay myself with dividends.

Somewhere I read that I have to pay normal PAYE + NI + 12% additional of the NI that my boss was previously paying for me. Somewhere else I read that I need to pay VAT. Most guides and articles focus only on how to avoid IR35, and not on how much exactly you need to pay.

Thank you all in advance for your help!

General rule on here is to make a clean break from your previous employer when going contracting as it is dodgy from both an employment law and tax perspective forward hem to immediately rehire you. Quite a few companies won't rehire you for a year after you become a contractor/freelancer if you were a former employee as they don't want HMRC to sniff around them ever or any union to cause trouble.

In regards to how much you have to pay - most within IR35 use an umbrella company so find a reputable umbrella company like ContractorUmbrella and use their calculator.

[adrdilauro]

Thank you all for your replies.

There is another thing that might seem silly, but I really don't find any clear information online. What is exactly the algorithm to calculate how much I have to pay on a IR35 contract? I find a lot of calculators where you put a lot of data, they ask you how much you intend to deduct from tax, how many weeks you work, but I simply want to know which percentages you have to pay in the simplest case, when I earn X gross and there is nothing to deduct.

Basically, I am quitting my permanent job to become a contractor, and right before leaving my boss offered me to hire me as a contractor for three additional months. If I understand correctly, there is no way to make this contract fall out of IR35, because I have been working as employee for this company for 2.5 years.

I'll get 475 a day for a total of 62 days = 29.450. How much do I have to pay of tax + NI, out of that amount? I want to do the calculation as if 29.450 were my whole PAYE salary this year, because after this contract I plan to only get contracts outside IR35 and pay myself with dividends.

Somewhere I read that I have to pay normal PAYE + NI + 12% additional of the NI that my boss was previously paying for me. Somewhere else I read that I need to pay VAT. Most guides and articles focus only on how to avoid IR35, and not on how much exactly you need to pay.

Thank you all in advance for your help!

[TheFaQQer]

I am new to contractor roles. I saw that, among the offers I am receiving, some of them are for public sector and thus subject to IR35.

All contracts that you engage via a limited company are subject to IR35 - someone is responsible for assessing whether the role is inside or outside the scope of making a deemed payment.

So you may be in public sector and outside IR35, or private sector and inside IR35. You could even be both at the same time if you are working on multiple projects concurrently - I have two private sector contracts where one is inside and one is outside.

Have a look at the newbie guides and the IPSE Guide to Freelancing (available here - free or paid membership required to download) and the IPSE guide to IR35 (available here) for more detailed information.

[DaveB]

Juts to add, not all Public Sector contract are inside IR35. There was an initial period where the majority were declared inside but more and more are now coming through that are declared outside by the client.

If you are on the CCS Digital Outcomes and Specialists framework you'll see that it's now about a 50 / 50 split between inside and outside.

[poorautojobber]

Hi all,

I am new to contractor roles. I saw that, among the offers I am receiving, some of them are for public sector and thus subject to IR35.

The question is, if I accept a role in public sector for half year, and then a role in private sector for the remaining part of the year, am I subject to be in IR35 for the whole year? Or I only have to pay national insurance for the portion of the year in which I was working in the public?



Thank you all

Adriano

It's assessed per contract. So you can work through ltd for the outside job even if those contracts are actually running at the same time.

[northernladuk]

The very quick answer is no. IR35 is on a contract by contract basis.

The longer answer is your seriously need to get a grasp of what IR35 is and how it affects you. You are missing the most basic point of what IR35 is and where it applies. A quick read of most guides would have gotten you past this point.

Do a lot more reading.. Quickly.

[adrdilauro]

Hi all,

I am new to contractor roles. I saw that, among the offers I am receiving, some of them are for public sector and thus subject to IR35.

The question is, if I accept a role in public sector for half year, and then a role in private sector for the remaining part of the year, am I subject to be in IR35 for the whole year? Or I only have to pay national insurance for the portion of the year in which I was working in the public?

Thank you all

Adriano