Contract Outside IR35 but through Umbrella - Tax the same?

[jamesbrown]

IR35 simply does not apply if you're working through an umbrella company. You pay full PAYE plus ErNI plus EeNI plus AL.

[northernladuk]

Yes it is. You need to understand your status with an umbrella and it will become clear. You are employed by the brolly therefore it taxes you like an employee whatever the tax status of the money coming in. Simple as that. The tax status of the money i.e. inside or outside is irrelevant. They will process the payment as the employee you are. It's not the most efficient way but it's what they do.

I'm not so sure about your assumption about switching from Brolly to LTD though. There are specialist mortgages for contractors that will take in to account the way we work but there are quite a few hoops to jump through and each has slightly different criteria. Most will lend on your rate and accept and S302 as evidence as income regardless of where you earned it. Problem is some lenders need X number of months left on the contract or others won't accept gaps etc.

Give Freelancer Financials as call. They specialise in contractor mortgages both for LTDs and Umbrellas. They'll send you a form to fill in about your situation and will advise which of the lenders you'll fit. The contractor mortgages can be just as competitive as the highstreet ones that wouldn't even look at you because of your current sitiation. Good news is, or it used to be, they'd lend on gross rate even if you were with a brolly. I don't quite get that as it blows you affordability out of the water but didn't seem to be a problem back in the day.

[Willy Win]

A couple of reasons, the first being purely down to being maybe overly cautious/ risk averse to a likelihood of the role going inside further down the line and the potental hassle saved.

Secondly, I am planning to go down the mortgage route for the first time later this year and, as I have only been with my Umbrella for 9 months, I would expect that switching away from them to a Ltd company for this contract would not look good for me in the application process

[hobnob]

Yes, if you work through an umbrella then it doesn't make any difference whether the role is inside/outside IR35. On the plus side (sort of), that means that you don't have to worry about being caught out later, because you're already paying the maximum tax.

Is there a reason that you need to work through an umbrella, e.g. does the client have a blanket ban on PSCs?

[Willy Win]

Possibly an obviously stupid question but asking it anyway as I have only contracted through an umbrella company once and that was inside IR35. As going Umbrella means being taxed as an employee, would deductions be exactly the same if the contract were Outside IR35 and day rate was the same also?

Consultancy has approached me with a gig which they state is £450 per day Outside even though I made them aware that my expectations are £520 inside. I clarified with them whether the client had assessed that it was definitely Outside which they confirmed it was. They merely stated that they ensure that this is followed up with them and as it is the client's responsibility that they're also prompted to do this further down the process.

I am just a bit dubious that they may not be being entirely upfront due to the initial higher Outside rate they have offered (unusual generally!) , having read a couple of posts on here where people have mentioned being told that their contract is Outside only suddenly for it to be switched to inside on offer and consequently getting a much lower rate after tax etc.

What is the best way I can be prepared for this or at least have a better indication that the appropriate due diligence has been done by the end client?