Reply to: Being offered renewal under umbrella, unsure about where to go from here

[Ariosa]

drob1984 thanks for presenting your story and advice, also thanks for everyone else that has provided feedback and guidance.

Long story... shorter, here are the steps I've taken and how things are currently:

Client initially determined contract from 1 April onwards to be "inside ir35". I then reviewed my contract with the client with a third party service up to March 31, came back as "inside IR35". I also reviewed my working practices with the client with a third party service up to March 31, came back as "outside IR35".

I feel it's vital to be covered for tax liability for the contract up to end of March, especially given the contradition between contract & working practices review, so I'm going to do just that. Client has already agreed on and signed a confirmation of arrangements for the duration of the contract up to end of March so in case of an investigation, I should be covered.

Client has also agreed to a rate +35% through umbrella from April 1st onwards so I'm going to move forward with that.

[drob1984]

I feel your pain - sadly this topic has now been "done to death" on the forums. As stated by others, it really comes down to your appetite for risk. Great post and thread here by Cojak

This is the second time (in 12 months) where I will have to walk away from a perfectly good contract due to the upcoming IR35 changes. I'm in an outside gig, I've been asking since November what the end-client is going to do r.e. IR35 and they yet have come to a conclusion. I do have other activities that I do through my company in bursts throughout the year.

My current contract which I started in late April 2020 (3-month contract), runs till March 31st, yet my renewals have always been 1-2 months at a time. The client is prepared to use the CEST tool, however as I work 5 days a week on this contract, I am pretty certain a determination will come back as "inside". Yes, I have turned down some requests they have asked me to do, however sometimes, for the good of the working relationship I have undertaken tasks they have requested. As stated they have yet to come back with an answer, but you have to prepare for the answer you don't want, right?

Having read a number of articles by employment-lawyers and financial types in recent weeks, it appears the goalposts have generally shifted in that if you work for a single client 5 days a week, you will get classed as an employee for tax-purposes. I 100% realise this isn't entirely accurate and there are many other factors to take into consideration. However, for my own sanity and outlook moving forwards, if I'm not working for multiple clients at a given time, then in the eyes of HMRC I'm on "the radar". I think anyone who contracts for a single client for a solid period of time moving forwards will be seen as an employee for tax purposes of that company. Given the nature of devops/infrastructure work that I/we do, its difficult IMO to be in a position where you do 1 or 2 days a week for a client. Totally get it if you're a developer or a PM. This article, whilst depressing, I am going to use that checklist there to guide my future direction and I think a lot of contractors reading that will see the writing is on the wall.
https://www.hiscox.co.uk/business-bl...tors-hiscox-uk

As of April 7th, I won't work via my PSC anymore, I am just planning to go Umbrella, unless there is some form of IR35 delay or cancellation, which this time, I really think is 99.99% unlikely.

So back to you, if you go inside, go umbrella or whatever you decide to do for the same gig, for the same client, through the same agency, you have just admitted that your contract has been "inside" and should have been subject to taxation at PAYE levels the entire time. You can't shirk it, the safest thing to do is to walk (in my view, its the only option) as if you hang around, due to sudden the increased NI payments that will appear against your name, you will effectively have a red flag against you. If of course, these payments start at a new client, new agent etc etc then at least that won't be linked to what you were doing previously.

If you decide to remain at the client, just be OK to foot the tax bill if and when you get investigated. Previous calculations I did, on a day rate of circa £500-550 a day, but the burden at just over £1000 for each month. So 12 months = £12k+

Let us know what you decide and good luck! Not easy for any of us right now.

[eek]

"After you've done that, you can still easily retain 60-80+% of your day rate, in order to use up your annual £40K pension allowance, again, depending on your actual day rate."

"After you've done that". ie, used your previous carried forward allowance you can "use up your annual £40K pension allowance". ie. this years.

I'll accept you may have inferred the wrong thing, rather than me implying it

But at the least the OP has all the details to make a decison now.

So after I've used up my annual pension allowance (as that's the first one used) I can use up my annual pension allowance - as that is what you actually said.

[Paralytic]

Your second paragraph



implied that the order the pension allowances were the oldest followed by this years rather than the other way around.

"After you've done that, you can still easily retain 60-80+% of your day rate, in order to use up your annual £40K pension allowance, again, depending on your actual day rate."

"After you've done that". ie, used your previous carried forward allowance you can "use up your annual £40K pension allowance". ie. this years.

I'll accept you may have inferred the wrong thing, rather than me implying it

But at the least the OP has all the details to make a decision now.

[gizzmo]

With an umbrella you can pay £40000 into your pension tax free via salary sacrifice from the money the agency pays the umbrella.

The umbrella does however need to pay you the living wage - so you can't throw everything into your pension.

Technically you can even pay more than 40k annually into your pension - however you have to pay tax at your marginal rate for anything over the annual allowance of £40k.
This is what i am doing at the moment until tax year rolls over - the umbrella pays me the basic minimum wage, and the rest into my personal SIPP. It keeps me in the Basic rate tax band as well as reduces the Employers NI meaning I end up taking home 13.8% more (albeit in the SIPP). However i have to fill in a tax form with my SIPP provider although i can choose to pay the tax from within the SIPP or outside the SIPP - i still need to work out which is more financially beneficial to me.

[eek]

I mainly claim subsidence and computer cost expenses.

Missed this - neither will be deductible going forwards.

[eek]

Yes, you must use current year's allowance first first, then any left over from previous 3 years, starting with the earliest.

Not sure what is "not quite" though - I just said that if you have previous years allowances, you can carry it forward.

Your second paragraph

How long you can do this for depends on your carry forward allowance and your day rate.

After you've done that, you can still easily retain 60-80+% of your day rate, in order to use up your annual £40K pension allowance, again, depending on your actual day rate.

implied that the order the pension allowances were the oldest followed by this years rather than the other way around.

[Paralytic]

Not quite - you will always use this years pension allowance first and then the oldest with an unused allowance next.

So it's 20/21 followed by 17/18 (as I think you can go back 3 years and I'm not in the mood to double check via google).

Yes, you must use current year's allowance first first, then any left over from previous 3 years, starting with the earliest.

Not sure what is "not quite" though - I just said that if you have previous years allowances, you can carry it forward.

[eek]

This. If you have previous years £40K pension allowances to carry forward, you can effectively "retain" 90%+ of your day rate by getting paid the minimum wage in cash and putting the rest towards your pension. How long you can do this for depends on your carry forward allowance and your day rate.

After you've done that, you can still easily retain 60-80+% of your day rate, in order to use up your annual £40K pension allowance, again, depending on your actual day rate.

This obviously means you'll need other cash to live off, but if your company has a war-chest (retained profit), you can continue to pay yourself a dividend (ideally, only up to the 7.5% tax threshold).

Not quite - you will always use this years pension allowance first and then the oldest with an unused allowance next.

So it's 20/21 followed by 17/18 (as I think you can go back 3 years and I'm not in the mood to double check via google).

[eek]

That's the only upside with (some) umbrellas. You can shove a lot of you pretax income into a pension.

Others will be more accurate about this than me though.

With an umbrella you can pay £40000 into your pension tax free via salary sacrifice from the money the agency pays the umbrella.

The umbrella does however need to pay you the living wage - so you can't throw everything into your pension.

[Paralytic]

That's the only upside with (some) umbrellas. You can shove a lot of you pretax income into a pension.

This. If you have previous years £40K pension allowances to carry forward, you can effectively "retain" 90%+ of your day rate by getting paid the minimum wage in cash and putting the rest towards your pension. How long you can do this for depends on your carry forward allowance and your day rate.

After you've done that, you can still easily retain 60-80+% of your day rate, in order to use up your annual £40K pension allowance, again, depending on your actual day rate.

This obviously means you'll need other cash to live off, but if your company has a war-chest (retained profit), you can continue to pay yourself a dividend (ideally, only up to the 7.5% tax threshold).

[eek]

All four are legit and they are the ones the client "audited"...

Which opens a different can of worms - what auditing did they actually do.

Remember Professional Passport and FCSA both "audit" the umbrella's they list and I have valid reasons to say neither list is trustworthy.

[Ariosa]

Which four umbrellas is the client proposing? Is there a reason why they won't let you choose your own? Make sure you do your research into the options.

All four are legit and they are the ones the client "audited"...

[cojak]

I mainly claim subsidence and computer cost expenses.


And how do pension contributions work through an umbrella? Apparently no corporation tax saving anymore as with a limited company and employer's pension contributions...

That's the only upside with (some) umbrellas. You can shove a lot of you pretax income into a pension.

Others will be more accurate about this than me though.

[ladymuck]

Which four umbrellas is the client proposing? Is there a reason why they won't let you choose your own? Make sure you do your research into the options.