Temping and national insurance, being self-employed?

[PhilAtBFCA]

bingocaller88

Thanks for your posts, but I think you may have missed some information:-

1. the agency cannot have you as a self employed person, ( Ch 7 ITEPA 2003 ) it seems you misunderstood that from the outset as you ended up PAYE with the agency.
2. rates will never be inclusive of vat in practice, its just not done for loads of reasons, prices for commercial contracts are +vat
3. a ltd co does not have to register for vat, so even if you did have a vat included rate you could have been a ltd co, and benefited, if you wanted to run your own business
4. recent ir35 developments havent changed much of anything, ir35 has been "developing" for 10 years. your status is dependent mostly on a case that was decided in 1968, since then there have been other cases but they all rely on that original decision.
5 dragonfly case didnt change a thing, susbstitution is just one factor that takes you outside ir35, there are several others to consider, sounds like the agency were talking to you about your contract and ir35, if so they are on very dodgy ground and should know better.
6. temps paid paye are employees for tax purposes and workers for employment legislation, and thats still the same basically, new legislation is on the way to change that in 2010.
7. you went paye and now youre wondering about expenses ? well there are some things you may be able to claim on your tax return at a year end it depends on your situation. If the agency is not paying expenses for the two clients sites, i think you will find that you cant claim anything.


In conclusion it seems quite likely that your assignment is one of employment and inside ir35, and that you do not really consider yourself in business at all. A temp position being paid paye by the agency with no expenses seems a very good solution.

I posted this really as I thought your situation is a great story about the difference between a "Professional Contractor and Freelancer" and a "Temporary worker/employee" - what you appeared to be offerred is a temp position and has nothing to do with being a Professional Contractor and Freelancer.

My guess is that your agency started talkking about contracting as a way of getting you interested in more potential £ at no cost to the agency. Bad news indeed for the agency.

That distinction is not one about the type of work or anything like that, its a distinction based on what the client is really looking for ( in this case an employee to do a job ) and what the worker wants ( in this case a job with as much £ as possible )

Agencies ( IMHO ) should be careful about confusing workers with talk about self employed/Limited companies/Umbrellas and all that sort of stuff when a PAYE temporary worker position fits the bill perfectly for all parties - Thats why we have legislation like the MSC regs, which means that agencies cannot introduce complex accounting arrangements for workers that just want a job, and a pay slip. ( It is a highly risky situation for them )

Hmm, just read this and it seems like a bit of a rant, but I think Professional Contractors and Freelancers get enough bad press and interest from the HMRC for things that are caused by other parties self interest, such as agencies who should really know better.

Phil

[bingocaller88]

What "recent IR35 developments" ?

Dragonfly, and "right of substitution"

On all of my contracts, there's no way that the client would have accepted me sending someone else to work instead of me.

[Lumiere]

What "recent IR35 developments" ?

[Not So Wise]

Temps are now are now basically employee's, so normal employee rules on allowances apply (also afaik rules on holiday pay, sick pay, maternity pay so forth)

As for further info about all this, really wrong place to ask, this is a contractor site, not a employee/temp site

[bingocaller88]

Well, despite the paperwork saying otherwise, it turned out that VAT wasn't included, so that worked quite well for the other people there who were through their own companies ...

Anyway I went through PAYE, and I wonder if anyone can comment on claiming tax relief on expenses? The agency wouldn't pay expenses but I did incur accommodation and travel expenses and worked at two different sites...

[pmeswani]

At which point, you turn around and say - no it doesn't. The ONLY reason they'd say this is to make their margin bigger. Going ltd should result in less admin for them, and therefore be a cheaper option. B2B VAT (except with banks) is cost neutral.

This thought had crossed my mind, but decided to give the benefit of doubt to the OP. I have never come across an agent that said that VAT is included in the daily / hourly rate. I was hoping this would have been the first.

[NotAllThere]

...

The other problem is that they decided that the quoted day rate INCLUDES VAT if thru a Ltd Co. As a temp I'd get the quoted day rate before tax/NI.

At which point, you turn around and say - no it doesn't. The ONLY reason they'd say this is to make their margin bigger. Going ltd should result in less admin for them, and therefore be a cheaper option. B2B VAT (except with banks) is cost neutral.

[pmeswani]

Thanks for your comments


Yes they want my P45.

The Ltd co option is available, but the contract would be heavily inside IR35. Therefore I reckon the temp route is better because they will pay the Employer's NI.

The other problem is that they decided that the quoted day rate INCLUDES VAT if thru a Ltd Co. As a temp I'd get the quoted day rate before tax/NI.

If you went through the agency, you would lose 20%. If you went through your own Limited company, you would lose 15% at source for VAT, and if you are using the flat rate VAT scheme, you can claim back 1.5% (+ 1% in the first year), therefore only losing no more than 13.5% (12.5% in the first year). You would be at least 6.5% better off. And with paying yourself via a limited company, you can pay yourself via PAYE in the region of £450 and claim the rest via dividends. The £450 amount doesn't attract any N.I. or Income Tax.

Unfortunately, I don't know enough about your contract (i.e. rate and length) and going through an agency may be the best solution for you. The day rate you have been offered is not the true rate in that case. It will be the total amount - 15% (regardless of whether you are on the flat rate or not).

[bingocaller88]

Thanks for your comments

I'm guessing that you will be giving them your P45? If so, you will be their employee (so to speak) for the purposes of tax. If you have a Ltd company, you can ask if you can receive the total income and deduct the tax via your Ltd company. If this is not an option, I would recommend turning down the role.

Yes they want my P45.

The Ltd co option is available, but the contract would be heavily inside IR35. Therefore I reckon the temp route is better because they will pay the Employer's NI.

The other problem is that they decided that the quoted day rate INCLUDES VAT if thru a Ltd Co. As a temp I'd get the quoted day rate before tax/NI.

[ratewhore]

If you pay class I then no need to pay class II. Sounds like not self employed!

class II if you are self employed : then you pay class IV on top.

If you have no job but still want to make contributions then it is class III.

Lucky for us it's so simple...

[pmeswani]

Hi,

I was a contractor but a temping agency offered me work which I'm happy to take.. especially in the light of recent IR35 developments

The contract says I'm self-employed but the agency would be paying Employer's NI, and deducting Class 1 Employee's NI and tax from my payslip.

Apparently it is normal that temps are self-employed.

But do I have to pay class 2 National Insurance as well?
And can I claim tax relief on expenses (even though the agency won't reimburse them)?

Thanks

I'm guessing that you will be giving them your P45? If so, you will be their employee (so to speak) for the purposes of tax. If you have a Ltd company, you can ask if you can receive the total income and deduct the tax via your Ltd company. If this is not an option, I would recommend turning down the role.

[BrilloPad]

If you pay class I then no need to pay class II. Sounds like not self employed!

class II if you are self employed : then you pay class IV on top.

If you have no job but still want to make contributions then it is class III.

[bingocaller88]

Hi,

I was a contractor but a temping agency offered me work which I'm happy to take.. especially in the light of recent IR35 developments

The contract says I'm self-employed but the agency would be paying Employer's NI, and deducting Class 1 Employee's NI and tax from my payslip.

Apparently it is normal that temps are self-employed.

But do I have to pay class 2 National Insurance as well?
And can I claim tax relief on expenses (even though the agency won't reimburse them)?

Thanks