Reply to: IR35 Myths

[malvolio]

Where does that 95% of gross come from it’s complete gibberish

Really? Right now, inside IR35 you get 5% expenses allowance. 100-5 is 95, as i recall.

New regs you dont get even that.

[eek]

Where does that 95% of gross come from it’s complete gibberish

[malvolio]

And, just to add, I did say 75% or so of gross via Ltd against 60% of 95% of gross inside IR35 via Ltd and no expenses agaisnt about 50% inside via Umbrella or PAYE under the new rules - which are in effect starting in a few weeks so likely to be the only other option.

Business costs are what you need them to be. An Accountant may not be necessary inside IR35 (I would keep one myself), insurances are the umbrella's problem, fees for the sensible umbrellas are only tens of pounds week - a lot more if you're silly enough to sign up with one that charges a percentage of your rate.

Tape measures and pieces of string come to mind.

[northernladuk]

Hi,

Sorry I must not have been clear in my question, I fully understand the benefits of a ltd company when working outside IR35. my question was in relation to working inside IR35 It seems I would loose all the benefits of the Ltd but still have the "burden" (I know it's not bad). I understand I would still have to sort out taxes and pay accountancy fees so it seems rather pointless.

The thing I would like to know is does a ltd company offer any benefits when working inside IR35?

You need to go use Google to go and do some research. This situation has been around 20 years since inside gigs started. It's nothing new and has been very well documented. Read some guides on Google and you'll learn a lot. You ask a short question that you think is simple but the answer, to encompass all aspects, is very long and complex.

Do some basic research and then comeback with some more detailed question if areas are unclear.

[ITGUYSI]

Quite a lot. Scary that you don't know the answers. Anyway...

Ltd Co outside IR35 you are paid a lump of money into the company which you, as a director of that company, ban pay out in the most efficient way you can. Sensibly that is a minimum salary plus dividends when you have enough profits, retaining money in the company for when you are out of work or want to top up your pension fund (which is important believe it or not). All taxes are yours to sort out and pay. Expect about 70-75% of gross ending up in your own bank account.

Up to now, Ltd Co inside IR35 means you are still paid a lump of money but 95% of that will be treated as salary for taxation purposes, meaning little left over for the treatment as above. Expect about 65% in your bank account.

Under the new rules, you are paid net of taxes. Since most clients are stepping around the intent of the new rules, you are looking at a likely 35% drop in rates so they can recover their new costs. So while you get to keep all your gross earnings you will be a long way - anything up to 50% - below the outside IR35 LtdCo for the same job.

Also, in any inside IR35 engagement, you don't get expenses, including subsistence, travel and training. Which makes a lot of gigs unaffordable.

HTH. But perhaps a read of the relevant guides on this site would be useful

Hi,

Sorry I must not have been clear in my question, I fully understand the benefits of a ltd company when working outside IR35. my question was in relation to working inside IR35 It seems I would loose all the benefits of the Ltd but still have the "burden" (I know it's not bad). I understand I would still have to sort out taxes and pay accountancy fees so it seems rather pointless.

The thing I would like to know is does a ltd company offer any benefits when working inside IR35?

[WordIsBond]

A few thoughts on some of the discussion on MOO above. As Mal has rightly stated, the test is "an irreducible minimum". In other words, to be inside IR35 there has to be at least the minimum level of mutuality of obligation for an employment relationship.

How much is that? Well, there's the rub.

Employment can be temporary, with no obligation to extend beyond the end of the term. So the fact that there is no obligation to extend beyond the end of our contracts does not mean we are below that irreducible minimum. It does, however, go the other way, if the client has an obligation to offer an extension or we have an obligation to accept, that's definitely in the realm of employment level MOO.

If there is a provision to terminate without notice, that's starting to get us on the right side of the line. That's not normal employment MOO. If there's the right to send us home for a day or to give us an unpaid furlough for a week or a month, that's not normal employment MOO. HMRC could say that it's comparable to a zero hours contract of employment, and they'd be right, but zero hours contracts don't happen much (at all?) in our industry, so it really isn't compatible with employment in our industry.

I put something else in my contracts, a broad gap between the hours I promise (very low) and the hours the client is committed to pay (very high), with the actual number of hours to be worked to be determined by me. (I also give the client an estimate of what I think it will be.) I explain the reason for this is that I want to have as much of the work as possible be done by my less expensive staff, but I can't always say in advance how much will be done by them and how much by me. So I decide how many hours will be worked by each person on the project.

I've been advised that this (which I do for business reasons, not IR35 reasons) is very helpful in regard to MOO.

[malvolio]

I'm confused about the difference between working inside IR35 as a ltd and using an umbrella. Should the take home pay be the same, less umbrella fees or does one have an advantage over the other? I understand the fundamental difference between the two ie Ltd, you are the sole director of a Ltd company and umbrella you are an employee of the umbrella company. As far as I can tell both should take home the same and if anything the ltd route could be more expensive depending on accounts fees. Does my thinking make sense or have I missed something?

Quite a lot. Scary that you don't know the answers. Anyway...

Ltd Co outside IR35 you are paid a lump of money into the company which you, as a director of that company, ban pay out in the most efficient way you can. Sensibly that is a minimum salary plus dividends when you have enough profits, retaining money in the company for when you are out of work or want to top up your pension fund (which is important believe it or not). All taxes are yours to sort out and pay. Expect about 70-75% of gross ending up in your own bank account.

Up to now, Ltd Co inside IR35 means you are still paid a lump of money but 95% of that will be treated as salary for taxation purposes, meaning little left over for the treatment as above. Expect about 65% in your bank account.

Under the new rules, you are paid net of taxes. Since most clients are stepping around the intent of the new rules, you are looking at a likely 35% drop in rates so they can recover their new costs. So while you get to keep all your gross earnings you will be a long way - anything up to 50% - below the outside IR35 LtdCo for the same job.

Also, in any inside IR35 engagement, you don't get expenses, including subsistence, travel and training. Which makes a lot of gigs unaffordable.

HTH. But perhaps a read of the relevant guides on this site would be useful

[ITGUYSI]

Bear with me here, I'm new

I'm confused about the difference between working inside IR35 as a ltd and using an umbrella. Should the take home pay be the same, less umbrella fees or does one have an advantage over the other? I understand the fundamental difference between the two ie Ltd, you are the sole director of a Ltd company and umbrella you are an employee of the umbrella company. As far as I can tell both should take home the same and if anything the ltd route could be more expensive depending on accounts fees. Does my thinking make sense or have I missed something?

[ladymuck]

It's probably not enforceable but these are early days and people will try things on.

Equally the consultancy signed it so without push back these things will continue.

The MD said he wasn't comfortable with it but as he saw it as a moot point, he knew it would never be tested on him.

I agree though, people should push back on such things.

[eek]

I was shown a contract today, by the consultancy I work via, for a piece of work they're doing elsewhere. The clause we discussed is moot for them because the person they placed is an employee.

I don't recall the exact wording but it was essentially saying the consultancy is liable for all taxes, etc should the determination by the client be wrong and they haven't already made the 'right' deductions. Essentially, it read like the client is passing the liability buck.

I can't see how that's legal or enforceable when the law is clear (is it?) that the liability rests with client.

It's probably not enforceable but these are early days and people will try things on.

Equally the consultancy signed it so without push back these things will continue.

[ladymuck]

I was shown a contract today, by the consultancy I work via, for a piece of work they're doing elsewhere. The clause we discussed is moot for them because the person they placed is an employee.

I don't recall the exact wording but it was essentially saying the consultancy is liable for all taxes, etc should the determination by the client be wrong and they haven't already made the 'right' deductions. Essentially, it read like the client is passing the liability buck.

I can't see how that's legal or enforceable when the law is clear (is it?) that the liability rests with client.

[WatkinG]

There is no such proportion. Theoretically you could have a one day/month contract that was inside IR35. Part time employees don't stop being employees just because they're part time.

In practice the less time you work for a given company the less likely it is to be deemed inside IR35, but don't fall into the trap of thinking just because a contract is less than full time hours it can't be inside IR35.

That’s pretty much what I thought. I have been working for the same company for a few years, in the same place doing the same thing which puts me firmly within IR35. That’s about to change. I will be taking work from the same company but will be working in different places unsupervised. Also, I will be able to send someone else to do the work if I need to. The wording of what you are doing is as important as the way you do it. I think I will be outside the IR35 remit with what I will be doing next year.

[technobabble]

Working practices

That said, even small pieces of work as you say could be outside if the contract and working practices are right.

This thread has been very helpful. I have specialist knowledge within a specific area of IT which my clients are almost always unfamilar with or have only a hazy knowledge of which is why my skills are in demand.

What I am now trying to understand is how that interacts with one of the pillars

"a lack of Direction and Control (D&C)"

Ordinarily a staff member would be under the control of someone who knows how to undertake a task and delegates that to get work done. In my area the client can't direct and control my work as they don't have any understanding of it, only that it needs to be done but not how etc.

If I am asked to help cover a non-specialised task then I would see that as clearly IR35 and that part of my work I would need to put through PAYE. But if I am doing my consultancy work then that is for the client but only I can undertake or know how to etc. Am I approaching this correctly?

[northernladuk]

Thanks - I don't yet have the Ltd company nor an accountant I only arrived back in the UK on 1st Dec ))

I am getting the idea on IR35 though thanks for your help.

Can a contract be both within IR35 and without ? - for example if I taken on to write a report and make specialised recommendation which is consultancy but do some day to day work to cover an absent team member which I would consider a PAYE'd role. I could invoice both aspects separately and charge different rates etc.

Yes. It's per contract. One can be inside, one could be outside. As long as they are dealt correctly tax wise not an issue.

That said, even small pieces of work as you say could be outside if the contract and working practices are right.

[technobabble]

IR35 works on a contract-by-contract basis, not a person.

If you have two contracts side by side, one can be inside, one outside. Have a chat with your accountant about how to most efficiently get the money to you - that's what you're paying them for after all.

Thanks - I don't yet have the Ltd company nor an accountant I only arrived back in the UK on 1st Dec ))

I am getting the idea on IR35 though thanks for your help.

Can a contract be both within IR35 and without ? - for example if I taken on to write a report and make specialised recommendation which is consultancy but do some day to day work to cover an absent team member which I would consider a PAYE'd role. I could invoice both aspects separately and charge different rates etc.