Reply to: Umbrella Employers NI

[lucyclarityumbrella]

It may be that the employment agency rules and the tax rules are not aligned (shocker).

Try adding contract law to it too

[webberg]

. Employers NI is deemed to come from the contract rate before the taxable salary is calculated. .

I'm not sure that is in alignment with the IR35 rules as they stand today.

It may be that the employment agency rules and the tax rules are not aligned (shocker).

I am of the view however that the traditional way in which day rates and deductions are shown, does not help in making things clear to contractors.

[lucyclarityumbrella]

If the client/umbrella try to charge that amount, you may have a claim against them for unlawful deduction of wages.

It is down to the detail unfortunately, and how this is portrayed to you. Employers NI is deemed to come from the contract rate before the taxable salary is calculated. The rates advertised must be the Contract Rate and not your taxable salary.

[webberg]

You are confusing a number of strands that although related, are determined by different rules.

If you are in the private sector, inside IR 35, then there is a requirement for whichever entity is handling the payroll (umbrella or your own limited) to deduct the full amount of tax, em'ee and em'er NIC and pay this over to HMRC.

If this is your limited, then strictly (in law) it's not PAYE although it is calculated that way.

You then need to look at your contract.

Your end client may have decided to pay you say £400 a day, all in. That is their budget and is what they are prepared to pay. From that the umbrella will deduct the tax and NIC and their fees. You are left with the net.

You may have negotiated a position whereby the end client is paying £400/day plus Em'er NIC.

That is presently not an industry standard contract, but I suspect will become so soon.

If so, then the end client may pay you say £350/day and pay the em'er NIC either directly to HMRC or to the umbrella to manage for them.

This industry has for a long time (a generation or more) looked at the gross day rate and worked back.

I suggest that has to change and instead you need to think about what you would like net of tax and all NIC and then calculate what the gross rate should be.

The end client may find the answer acceptable or not. If not, you are in a commercial negotiation around how much the end client wants you and how much you want the job.

[mudskipper]

bman 06 - If your ltd, but really should be PAYE then your potentially at risk from HMRC action now. However, given their resources there unlikely to take action against you. If your in a ltd scheme and should be in PAYE then you run the risk of retrospective action by HMRC i.e. they could argue that if your PAYE from Apr 2019 (if the new IR35 rules are introduced into the private sector then) and prior to that you were ltd, then you should always have been PAYE. If your still ltd after Apr 2019, then there could be a risk in the future as HMRC are currently asking for details of all contractors operating through a PSC working in the public sector, so it seems logical that they will do the same for the private sector in the future. If your PAYE or working through an umbrella then the employer or the brolly should be paying the Employers NI. This is what the law and HMRC intended.

You can operate inside IR35 as a limited company. There is nothing illegal or dodgy in doing so, as long as you pay your contract income (less allowable expenses) as PAYE. I'm not sure what you mean by a ltd scheme? HMRC don't care if you operate via a LtdCo, umbrella or client/agent payroll as long as the correct taxes are paid.

[mudskipper]

The umbrella advertised rate is misleading because they will finish up deducting the Employers NI, Levy, Employers Pension and their margin from this rate.

If the employer or agency, are advertising the role as inside, then they or the agency should be paying the Employers NI or if via a brolly, they should be adding the ErNI to the rate so that the contractor gets the advertised rate before employee deductions.

If the client/umbrella try to charge that amount, you may have a claim against them for unlawful deduction of wages.

It may be "industry standard" to charge the contractor, but that standard will have to change where the client is in the public sector and bluntly, compliant umbrellas should already be doing this.

Of course you should be wary of signing any contract that suggests otherwise.

I believe this is also the IPSE view.

IPSE recognises the difference between contractors making their own determination and using umbrellas in the private sector, and contractors in the public sector whose clients have determined their IR35 status. In the former, all deductions come from the advertised rate. In the latter, the client should be paying the employer taxes (it's the law).

Be very wary of private sector roles advertised as 'outside' - in the private sector (for now) the contractor is still liable for the determination and any taxes due.

OP is talking about private sector - all deductions will therefore come from the advertised rate.

[malvolio]

bman 06 - If your ltd, but really should be PAYE then your potentially at risk from HMRC action now. However, given their resources there unlikely to take action against you. If your in a ltd scheme and should be in PAYE then you run the risk of retrospective action by HMRC i.e. they could argue that if your PAYE from Apr 2019 (if the new IR35 rules are introduced into the private sector then) and prior to that you were ltd, then you should always have been PAYE. If your still ltd after Apr 2019, then there could be a risk in the future as HMRC are currently asking for details of all contractors operating through a PSC working in the public sector, so it seems logical that they will do the same for the private sector in the future. If your PAYE or working through an umbrella then the employer or the brolly should be paying the Employers NI. This is what the law and HMRC intended.

Nope, still don't understand...

Anyway, it's not a case of "being PAYE", it's a case of being caught by the IR35 rules, which is up to you to decide. If you are you get paid your day rate net of tax through an umbrella, or 95% of YourCo's operating profit if through your own company or under PAYE is you sign up as an employee of the agency (which would be silly but hey, there are silly people out there). In all three, you are liable for tax and both NICs.

If you are working in the public sector - i.e. for an organisation subject to the FOI legislation - then they make the determination and pay you net of PAYE and Employee NICs, but they are liable for Employers' NICs (and Apprentice Levy but let's not confuse things). Those rules do not yet apply to non-PS roles although they might in time if Hammond is terminally stupid and fails to listen to reason or economic argument. So the signs are not good...

[Vincenth1]

Employers NI

bman 06 - If your ltd, but really should be PAYE then your potentially at risk from HMRC action now. However, given their resources there unlikely to take action against you. If your in a ltd scheme and should be in PAYE then you run the risk of retrospective action by HMRC i.e. they could argue that if your PAYE from Apr 2019 (if the new IR35 rules are introduced into the private sector then) and prior to that you were ltd, then you should always have been PAYE. If your still ltd after Apr 2019, then there could be a risk in the future as HMRC are currently asking for details of all contractors operating through a PSC working in the public sector, so it seems logical that they will do the same for the private sector in the future. If your PAYE or working through an umbrella then the employer or the brolly should be paying the Employers NI. This is what the law and HMRC intended.

[bman06]

No pressure then! OK private sector and using an umbrella as inside IR35... first of all it is deemed that the contract rate is to pay the Employers NI. Based on how the employment contract is written, your taxable salary is not available until the employment costs have been met (this includes the Employers NI). I would always advise the contractor to look at the take home to ensure that the contract rate gives them the amount they are looking to achieve from the assignment before they decide to take the gig.

As for the "model" you mentioned you should be concerned, 1. the likelihood is that this falls foul of the False Self-Employment Legislation (amongst others I am sure), esp if there was a recruiter involved. 2. if you are inside IR35, you need to pay PAYE taxes, you are deemed employed not self-employed.

HTHs

Even though I am contracting at a Bank I am deemed to be an employee. I have checked with various tools online and sought opinion of my accountants and everything suggests I should be on a PAYE scheme rather than a LTD scheme. Im comfortable with this and can finally sleep at night knowing whats coming in Apr2019. so from what you say it seems I have to pay both income tax and employee NI, again this makes sense to me. What I find odd is that I have to fork out for employers NI of 13.8% but it seems this is the legal way to do things and stay within HMRC's boundaries.

Yes then agree that the Prestige solution in fact is not right for me and no doubt this will catch up with me in the future.

thanks Lucy.

[Vincenth1]

Umbrella Employers NI

The umbrella advertised rate is misleading because they will finish up deducting the Employers NI, Levy, Employers Pension and their margin from this rate.

If the employer or agency, are advertising the role as inside, then they or the agency should be paying the Employers NI or if via a brolly, they should be adding the ErNI to the rate so that the contractor gets the advertised rate before employee deductions.

If the client/umbrella try to charge that amount, you may have a claim against them for unlawful deduction of wages.

It may be "industry standard" to charge the contractor, but that standard will have to change where the client is in the public sector and bluntly, compliant umbrellas should already be doing this.

Of course you should be wary of signing any contract that suggests otherwise.

I believe this is also the IPSE view.

[lucyclarityumbrella]

Lucy seems like she knows whats going on, what do you think?

No pressure then! OK private sector and using an umbrella as inside IR35... first of all it is deemed that the contract rate is to pay the Employers NI. Based on how the employment contract is written, your taxable salary is not available until the employment costs have been met (this includes the Employers NI). I would always advise the contractor to look at the take home to ensure that the contract rate gives them the amount they are looking to achieve from the assignment before they decide to take the gig.

As for the "model" you mentioned you should be concerned, 1. the likelihood is that this falls foul of the False Self-Employment Legislation (amongst others I am sure), esp if there was a recruiter involved. 2. if you are inside IR35, you need to pay PAYE taxes, you are deemed employed not self-employed.

HTHs

[bman06]

If you work for a public sector client, then they are liable for the employers NIC.

This is in legislation and is inescapable.

If the client/umbrella try to charge you that amount, you have a claim against them. You may need to go to a Tribunal to prove it, but it's there.

It may be "industry standard" to charge you, but that standard will have to change where the client is in the public sector and bluntly, compliant umbrellas should already be doing this.

As for an umbrella "setting" you to self employed, that is a dangerous path.

Neither you, not an umbrella, nor HMRC can "set" your status. Your tax status as employee or self employed, arises from the job you are doing, how you do it, when, where, etc. Dozens of factors are included in this.

The only reason an umbrella may "set" your status is to avoid NIC.

Without a proper review of your circumstances that can be used to defend the status applied and some form of guarantee from the umbrella, my advice is to walk away.

So are you saying that the umbrella use do not charge you Employers NI, if so then which umbrella do you use? I think everyone has an opinion and can quote legislation after legislation but the proof is always in the pudding, who is actually using an umbrella for a private sector contract role because they fall foul of IR35 and are not paying the employers NI them-self?

[bman06]

[QUOTE=malvolio;2593165]You've had that answered at least three times now. What do you think?

Seems everyone is gearing this to the Public sector.
Seems like people are saying I shouldn't pay the employer NI yet the umbrella market says otherwise.
Contradictions .... not a easy topic.

Are you using an Umbrella? Are you working in the private sector? To you pay the Employers NI? Which umbrella do you use?

[mudskipper]

I work in the Private sector.

The reason I moved away from my LTD company and to a PAYE umbrella solution was because I fall foul of IR35. So to avoid any investigations from HMRC I simply corrected my position.

So im still none the wiser if I should pay the employer NI or if the umbrella company should.

Lucy seems like she knows whats going on, what do you think?

In the private sector, you make the IR35 determination, and the ErNI will come from your rate (i.e. the umbrella will deduct it from your rate and pay it to HMRC - so they pay it, but from your rate). If you're unclear how it works, talk to your umbrella.

[malvolio]

I work in the Private sector.

The reason I moved away from my LTD company and to a PAYE umbrella solution was because I fall foul of IR35. So to avoid any investigations from HMRC I simply corrected my position.

So im still none the wiser if I should pay the employer NI or if the umbrella company should.

You've had that answered at least three times now. What do you think?

Lucy seems like she knows whats going on, what do you think?

She does.