Reply to: Public sector.... switch to umbrella, really?

[Barrygbr]

Have a look at this:
http://forums.contractoruk.com/umbre...ey-differ.html

Lucy from Contractor Umbrella explains the reasoning behind it.

Going perm sounds best for you.

If you are prepared to put up with all the rubbish that this entails then I agree, going perm does sound like your best option.

[Barrygbr]

It's starting!!!! Hold on everyone....

Yes indeed. These are just the early rumblings!

[eek]

Regarding point 2, anyone able to give an example? I had this bright idea that I could switch to a brolly (due to working for a public client), then 100% salary sacrifice and then have my limited company (plenty of retained profits) pay me a small salary (whatever the tax free allowance is changing to) and any divs (only if tax efficient) to live on. No idea if this is allowed but sounds good to me

I'm guessing it still kind of works without the 100% salary sacrifice as I'd be able to put £40k worth as salary sacrifice through the brolly but as the NMW accounts for approx £14k already then I may not get as much benefit from extracting the limited company money. I'm reading the above that you still get the tax benefits from putting as much pension as you can away whilst still leaving enough for the NMW and the tax and NIs etc is only on the smaller amount.

My very rough estimate is that the national living wage (£7.50 an hour from April) would take £299 a week from your pay packet and there would be enough £30 or so deducted for umbrella fees. That probably is slight on the high side as the calculation was (£7.50*35*1.139) of which 13.4% is employers NI and 0.5% the apprenticeship allowance....

Hence you could throw everything bar £329 a week into a pension....

[mashetti]

example?

From a conversation with Lucy regarding just that - I',m posting it here because of question 2

1)Am I correct in saying Salary Sacrifice is always better than trying to reclaim pension contributions via self assessment due to National Insurance.

1. yes salary sacrifice is the best way to do it, as putting it through self-assessment will only see the income tax benefit I believe.

2) Were I to use an umbrella for 3 months and wanted to sacrifice my entire salary into my pension is that achievable....

2. No, we have to ensure that the contractor stays above NMW, so they would have to receive NMW after deductions (ie Employers NI, pension, and our margin), the rest could then be put in a pension up to the maximum amounts for the year (which I think currently stands at £40k for the year).

Regarding point 2, anyone able to give an example? I had this bright idea that I could switch to a brolly (due to working for a public client), then 100% salary sacrifice and then have my limited company (plenty of retained profits) pay me a small salary (whatever the tax free allowance is changing to) and any divs (only if tax efficient) to live on. No idea if this is allowed but sounds good to me

I'm guessing it still kind of works without the 100% salary sacrifice as I'd be able to put £40k worth as salary sacrifice through the brolly but as the NMW accounts for approx £14k already then I may not get as much benefit from extracting the limited company money. I'm reading the above that you still get the tax benefits from putting as much pension as you can away whilst still leaving enough for the NMW and the tax and NIs etc is only on the smaller amount.

[lucyclarityumbrella]

Since April 2016 'no' expenses are tax deductible through a brolly - any travel/accommodation/subsistence etc. must now come out of your own pocket. Ouch.
If the gig's 'on your doorstep' all well an' good, long distance contracts are now not so attractive.

Just worth mentioning that although the non-chargeable expenses (ie the ones that were previously used for tax relief purposes) are no longer allowable at source via the umbrella, we can still process chargeable expenses (ie the ones the client will agree to reimburse in full). These will go through on the invoice, with no tax applied when they are paid back to you with your salary, so if there are any chargeables that you can agree with the client, then don't forget we can still process these.

[SunnyInHades]

local. Ive been looking into it and out of a weekly earning of £1100, various umbrella companies are offering me take home pay of between £680 and £730

With a reputable brolly you're typically looking at 60-65% take home net.

60% x £1100 = £660
65% x £1100 = £715

Since April 2016 'no' expenses are tax deductible through a brolly - any travel/accommodation/subsistence etc. must now come out of your own pocket. Ouch.
If the gig's 'on your doorstep' all well an' good, long distance contracts are now not so attractive.

e.g.
Assuming another public sector contract comes up 150 miles away and outside London, you might have the following weekly expenses:
Petrol Mon morning to site: £20
Petrol Fri back home from site: £20
4 nights premier inn: £200
Petrol to/from hotel and site: £10
Food: £30

Total
£280

That reduces a £660/week down to £380.

FYI: The UK minimum wage is £7.50/hour - a 40 hour week on minimum wage brings in approx £283 net.

[eek]

From a conversation with Lucy regarding just that - I',m posting it here because of question 2

1)Am I correct in saying Salary Sacrifice is always better than trying to reclaim pension contributions via self assessment due to National Insurance.

1. yes salary sacrifice is the best way to do it, as putting it through self-assessment will only see the income tax benefit I believe.

2) Were I to use an umbrella for 3 months and wanted to sacrifice my entire salary into my pension is that achievable....

2. No, we have to ensure that the contractor stays above NMW, so they would have to receive NMW after deductions (ie Employers NI, pension, and our margin), the rest could then be put in a pension up to the maximum amounts for the year (which I think currently stands at £40k for the year).

[cojak]

Believe me, I am getting calls left, right and centre where contractors are "just hearing about this", and many that have not even considered that the work in March will need to be paid before 6th April. I know sometimes brollies are not overly popular, but as HMRC squeeze more and more people under employment taxes it is an option to consider. I am seeing more and more opting for the pensions route, so they can gain some tax saving.

Could you write a quick note explaining how pensions work with umbrellas Lucy?

I'll make it a sticky if you do.

[lucyclarityumbrella]

Believe me, I am getting calls left, right and centre where contractors are "just hearing about this", and many that have not even considered that the work in March will need to be paid before 6th April. I know sometimes brollies are not overly popular, but as HMRC squeeze more and more people under employment taxes it is an option to consider. I am seeing more and more opting for the pensions route, so they can gain some tax saving.

[SueEllen]

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Yeh I haven't been here long, only my second week, and the contract will last about 3-4 months, its an exchange migration and looking at it now, should be complete on time in May. Hopefully ill get 2 months decent pay out of it and then ill just have to take a hit on the umbrella pay for the remaining month or so, and with any luck there wont be any questions asked, then ill just look for a private sector role and keep in mind to avoid public sector in the future. I do feel for IT managers in the NHS and councils as they are going to find themselves well out of luck when they need skilled contractors in the future, unless they can afford to burn up their budgets quickly, this government is a joke, if I didn't have a family now I would go back and work abroad again.

Sure your other half really doesn't want to? There are more kid friendly countries in the world.

[LondonManc]

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Yeh I haven't been here long, only my second week, and the contract will last about 3-4 months, its an exchange migration and looking at it now, should be complete on time in May. Hopefully ill get 2 months decent pay out of it and then ill just have to take a hit on the umbrella pay for the remaining month or so, and with any luck there wont be any questions asked, then ill just look for a private sector role and keep in mind to avoid public sector in the future. I do feel for IT managers in the NHS and councils as they are going to find themselves well out of luck when they need skilled contractors in the future, unless they can afford to burn up their budgets quickly, this government is a joke, if I didn't have a family now I would go back and work abroad again.

If it's a short term exchange migration, I'd be looking at asking them to put it outside of IR35 given how short term it is.

[likewise]

+1. If HMRC used Agency reporting to generate a list of targets working with the same agency now inside IR35 would keep you on the list as they may look at NI numbers rather than payee to details to determine who to investigate.

Hence the advice to find a different agency. However if you've only been there 3 months the risk isn't that great.

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Yeh I haven't been here long, only my second week, and the contract will last about 3-4 months, its an exchange migration and looking at it now, should be complete on time in May. Hopefully ill get 2 months decent pay out of it and then ill just have to take a hit on the umbrella pay for the remaining month or so, and with any luck there wont be any questions asked, then ill just look for a private sector role and keep in mind to avoid public sector in the future. I do feel for IT managers in the NHS and councils as they are going to find themselves well out of luck when they need skilled contractors in the future, unless they can afford to burn up their budgets quickly, this government is a joke, if I didn't have a family now I would go back and work abroad again.

[LondonManc]

+1. If HMRC used Agency reporting to generate a list of targets working with the same agency now inside IR35 would keep you on the list as they may look at NI numbers rather than payee to details to determine who to investigate.

Hence the advice to find a different agency. However if you've only been there 3 months the risk isn't that great.

The exposure isn't that great either, fortunately.

[eek]

Yup. Plenty of discussion about this hitting private sector already. As I said, you are 4+ months behind the curve here.

And just to make the point again. Carrying on in the same role however you dress it up could be an issue.

+1. If HMRC used Agency reporting to generate a list of targets working with the same agency now inside IR35 would keep you on the list as they may look at NI numbers rather than payee to details to determine who to investigate.

Hence the advice to find a different agency. However if you've only been there 3 months the risk isn't that great.

[LondonManc]

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Thanks for the info, ill have a good look at them links tonight.

Fortunately the agency I work with on this one are quite good, they have assured us 100% that they will pay into our ltd company business bank accounts for any work done prior to 6th April which they should as well. I am also pushing for a completely new contract from them for the remainder of the project after the 6th of April so that it is not a continuation of the previous one under my limited company and so far it looks good, the agency are willing. If I am to continue working here (and it wont be for long probably given the loss of pay) then I will have a new contract for the remainder of this project im working on and this will be paid via umbrella.

I am worried that this could go to the private sector though, literally this was the first I had heard of this at the end of last week when the agency told us. If this does go to the private sector then doing contracting will be a thing of the past for most people, unless companies start increasing their rates massively, which I doubt. Another point, haven't the government actually thought that this might affect councils, the NHS etc....who rely on a lot of contractors to do short migration projects etc... ?? suddenly them contractors will not be available because it wont be worth it, all the government seems to think about it lining the tax coffers and not what is in the best interest of public services.

If you're doing exactly the same role, then you'll still be at significant (unfair) risk of a retrospective tax grab by HMRC