Reply to: Yet another Limited inside IR35 vs Umbrella thread

[lucyclarityumbrella]

Yes exactly the overall assignment rate which I’m expecting to be my current day rate PLUS what’s needed to take care of ERNIC and Levey

But you said it's transitioning from PSC to umbrella, so not an outside to inside staying with the PSC. Good luck with that one!

[ComplianceLady]

Yes exactly the overall assignment rate which I’m expecting to be my current day rate PLUS what’s needed to take care of ERNIC and Levey

That is a commercial negotiation though. Whereas if you were still paid limited but inside the client could only terminate your contract and offer a new one on a lower rate, they couldn't simply deduct from the rate.

[Major Hassle]

Transferring to umbrella means IR35 does not apply so the provisions of adding ERNIC on top of the rate do not apply. It is legal (and normal) to take ERNIC from the overall umbrella 'assignment rate'.

The only time you can't do this is inside IR35 - which is ONLY when PAYE is processed for funds paid via the PSC.

Yes exactly the overall assignment rate which I’m expecting to be my current day rate PLUS what’s needed to take care of ERNIC and Levey

[ComplianceLady]

This is in-situ transitioning from ltd to Umbrella

Transferring to umbrella means IR35 does not apply so the provisions of adding ERNIC on top of the rate do not apply. It is legal (and normal) to take ERNIC from the overall umbrella 'assignment rate'.

The only time you can't do this is inside IR35 - which is ONLY when PAYE is processed for funds paid via the PSC.

[Major Hassle]

As ComplianceLady said though - if advertised on an umbrella basis then it doesn't apply. Only if they offer inside IR35 with PAYE to the Ltd company.

This is in-situ transitioning from ltd to Umbrella

[lucyclarityumbrella]

Having that exact conversation now with Agency x

As ComplianceLady said though - if advertised on an umbrella basis then it doesn't apply. Only if they offer inside IR35 with PAYE to the Ltd company.

[Major Hassle]

And exactly why there is a law against it...

If anyone does get caught like this, they should consider taking the umbrella to court. That's because the umbrella is supposed to bill the agency (and indirectly the client) at a rate that covers the NICs/Levy overhead, so it never goes near the worker's income. the worker s onluy liable for PAYE and EeNICs, even after next April.

If you're offered a new contract that represents a drop in income to cover the client's costs then you should have an interesting discussion...

Having that exact conversation now with Agency x

[ComplianceLady]

The rate advertised to the contractor inside IR35 l must be net of ERNICs and App. Levy. That is the law(Chapter 10 of IETPA to be a little more specific). It's being ignored because nobody is challenging it. Like I said - too many sheep.

The thing being missed here though is most 'inside' roles are advertised on an umbrella basis, which doesn't have the same stipulation. I've yet to come across a client who will accept a true inside IR35 engagement type.

[lucyclarityumbrella]

Problem is that we, as the umbrella company get given the Gross Contract Rate, whereby the employment costs must be met before we reach the taxable salary.

Come April the requirement for the agencies to provide the Key Information Documents (KIDs) to all contractors before signing any contractual arrangement, I guess is HMRCs way of showing the transparency. Whether that gives any clout for increased rates who knows. My guess is the only arguement will come if the contractor is prepared to fight the IR35 determination.

[GhostofTarbera]

So an umbrella would pass that into the Agency in their invoicing and the Agency would pass it onto the end client.

I suspect, as you surmise, that many companies haven't twigged that.

My concern is that umbrellas don't properly pass that cost on and instead carry on with the current way of taking the whole lot of the rate quoted to the contractor

Exactly what they will do


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[ladymuck]

So clearly the ERNI and apprenticeship levy must be billed additionally to the end client (as the Umbrella margin won't even come close to covering it.) It'll be interesting to see what happens when the penny drops because this is absolutely not what the banks are expecting. You'd think their armies of employment lawyers would have seen this coming a mile off...

So an umbrella would pass that into the Agency in their invoicing and the Agency would pass it onto the end client.

I suspect, as you surmise, that many companies haven't twigged that.

My concern is that umbrellas don't properly pass that cost on and instead carry on with the current way of taking the whole lot of the rate quoted to the contractor

[Amanensia]

I thought I had seen that somewhere and was trying to find the specific text. Essentially the rate you are quoted should be on the same basis as what would be quoted to an employee.

The only difference is that the fee payer pays the levy and employers NI, not the end client. Only income tax and employees NI should be deducted from the rate quoted.

So clearly the ERNI and apprenticeship levy must be billed additionally to the end client (as the Umbrella margin won't even come close to covering it.) It'll be interesting to see what happens when the penny drops because this is absolutely not what the banks are expecting. You'd think their armies of employment lawyers would have seen this coming a mile off...

[ladymuck]

The rate advertised to the contractor inside IR35 l must be net of ERNICs and App. Levy. That is the law(Chapter 10 of IETPA to be a little more specific). It's being ignored because nobody is challenging it. Like I said - too many sheep.

I thought I had seen that somewhere and was trying to find the specific text. Essentially the rate you are quoted should be on the same basis as what would be quoted to an employee.

The only difference is that the fee payer pays the levy and employers NI, not the end client. Only income tax and employees NI should be deducted from the rate quoted.

This is the key difference from the current umbrella model and the unwary need to make sure they don't get caught out.

[malvolio]

It will be impossible to defend in the manner you ask, but that won't stop it happening!

I am most certainly not a lawyer but I understand from what you and others have said over the past few months that, in theory, the rate advertised to the worker should be the rate net of ERNI. Clearly in the first instance that's not going to happen - it appears that many of the banks that are shuttling everyone into Umbrellas are currently telling their contractors that there won't be a rate change.

We may see some backtracking on that definition before April, as reputable Umbrellas pick up these people and the message starts getting back to the banks that unless they change (reduce!) their headline rates then the Umbrellas are going to be billing them rather more than they expected. But ultimately I would be very surprised indeed if the ERNI costs end up being picked up by the banks. That's absolutely not the message that's being put out there.

Incidentally all the Umbrella calculators out there interpret the rate you input as the total gross rate, including everything other than VAT. So, if it's really the case that headline rates should be net of ERNI (and I don't doubt you), then it doesn't appear to be standard market practice...

The rate advertised to the contractor inside IR35 l must be net of ERNICs and App. Levy. That is the law(Chapter 10 of IETPA to be a little more specific). It's being ignored because nobody is challenging it. Like I said - too many sheep.

[Amanensia]

You're on £500 a day. Suddenly, with no other changes, including in the work you're doing, that contract is binned and you're offered one on £450 a day. How easy will it be for the client to defend that as not being related to their picking up an extra 22% or so in tax liabilities that don't belong to the worker?

It will be impossible to defend in the manner you ask, but that won't stop it happening!

I am most certainly not a lawyer but I understand from what you and others have said over the past few months that, in theory, the rate advertised to the worker should be the rate net of ERNI. Clearly in the first instance that's not going to happen - it appears that many of the banks that are shuttling everyone into Umbrellas are currently telling their contractors that there won't be a rate change.

We may see some backtracking on that definition before April, as reputable Umbrellas pick up these people and the message starts getting back to the banks that unless they change (reduce!) their headline rates then the Umbrellas are going to be billing them rather more than they expected. But ultimately I would be very surprised indeed if the ERNI costs end up being picked up by the banks. That's absolutely not the message that's being put out there.

Incidentally all the Umbrella calculators out there interpret the rate you input as the total gross rate, including everything other than VAT. So, if it's really the case that headline rates should be net of ERNI (and I don't doubt you), then it doesn't appear to be standard market practice...