Reply to: Paystream - "Employers Costs on Holiday Pay"

[lucyclarityumbrella]

Nope because if you don’t take the holiday within the holiday year - it’s perfectly legal for the umbrella to take the money as profit at the end of the holiday year.

Albeit, this is now frowned upon across the board, so am hoping this won't be the case moving forwards!

[eek]

The PayStream FAQ suggests that accrued holiday pay is taxed when paid and not when accrued.

Is there a maximum one can accrue?

I'm wondering if there's a possibility of deferring income across tax years if so...

(I'm guessing this angle won't work, but as always I like to check with folks more knowledgeable to find out why)

Nope because if you don’t take the holiday within the holiday year - it’s perfectly legal for the umbrella to take the money as profit at the end of the holiday year.

If you are a contractor just insist on holiday pay being paid upfront that works out cheapest

[DrStrange]

The PayStream FAQ suggests that accrued holiday pay is taxed when paid and not when accrued.

Is there a maximum one can accrue?

I'm wondering if there's a possibility of deferring income across tax years if so...

(I'm guessing this angle won't work, but as always I like to check with folks more knowledgeable to find out why)

[lucyclarityumbrella]

Umbrella's are likely to offer both options; advanced or accrued. If you opt for the accrued, then the likelihood is all taxes are taken when it is accrued, so the monies that sit there are yours when you take annual leave. As we have seen before if anyone opts for this then make sure either at the end of the holiday year (see contract), or at then end of the assignment, that you request it all to be paid back out to you.

[northernladuk]

Advanced holiday pay (i.e. receiving it immediately when you are paid for the week you've just worked) is something we've discussed multiple times here - usually when someone complains about an umbrella stealing it.

The only reason why holiday pay should be being retained by an umbrella is because the worker wants that done for their own personal reasons - it really should always be paid in advance because it removes the possibility of shenanigans occurring.

This was my thinking hence taking the money upfront.

[eek]

Not sure it's relevant but was interesting speaking to Paystream today. They offered to pay me my holiday pay upfront so I don't get paid when I'm off or they can keep it and pay me. I've indicated I want it all now but am waiting for someone to explain it in more detail before I finalise it.

Not seen this mentioned before on the forums I dont think.

Advanced holiday pay (i.e. receiving it immediately when you are paid for the week you've just worked) is something we've discussed multiple times here - usually when someone complains about an umbrella stealing it.

The only reason why holiday pay should be being retained by an umbrella is because the worker wants that done for their own personal reasons - it really should always be paid in advance because it removes the possibility of shenanigans occurring.

[northernladuk]

Not sure it's relevant but was interesting speaking to Paystream today. They offered to pay me my holiday pay upfront so I don't get paid when I'm off or they can keep it and pay me. I've indicated I want it all now but am waiting for someone to explain it in more detail before I finalise it.

Not seen this mentioned before on the forums I dont think.

[lucyclarityumbrella]

Also with regards to the holiday pay, again it is down to the way in which the umbrella is processing. We deduct taxes etc when the holiday pay is accrued (if they pick that option) and not when repaid. That way our contractors can see what funds they have in their holiday pot, and when they request it that is the amount they get in their account - makes life a lot more straight forward.

[lucyclarityumbrella]

Just addressing the additional SIPP payment from a brolly perspective. Most will add a charge for the SIPP payment as it is a lot more admin work for individual SIPPs for every contractor rather than the umbrella pension scheme which would be one payment for the bulk of the contractors on their books.

[northernladuk]

FWIW, I had a good experience with Paystream.

Having been forced down such an attrocious brolly that I had to kick off, threaten to get the client involved and threaten to bin the contract that they added somebody new to the PSL, I'd gladly go back to them!

Appreciate that. I'm pushing back at the moment but if push comes to shove then that's made the decision a whole lot easier.

[vwdan]

I've got this lot and another 4 of the big ones to pick from. It's the same list as my 'Ones to avoid' list as well. Mehhh

FWIW, I had a good experience with Paystream.

Having been forced down such an attrocious brolly that I had to kick off, threaten to get the client involved and threaten to bin the contract that they added somebody new to the PSL, I'd gladly go back to them!

[northernladuk]

I've got this lot and another 4 of the big ones to pick from. It's the same list as my 'Ones to avoid' list as well. Mehhh

[eek]

Any extra that isn’t included within the umbrellas margin has to be taken out of your gross pay (HMRC rules and the law)

its why some umbrellas (Giant) have different schemes with different margins / rates and you pick the scheme most appropriate for you use case and that allows everything to be done within the margin

[DrStrange]

Thank you.

So it's essentially ENIC + AL for the holiday pay, paid in advance if you like. As such, when that holiday pay is taken/paid out, it's only subject to NIC and IT as the 'employer taxes' has already been paid?

Do you know why the admin fee for salary sacrifice is paid from 'Gross Pay' rather than 'Umbrella Income'? I'd have thought such an admin fee would be treated the same as margin and deduced before the 'Gross Pay' is calculated.

[eek]

It's right but the fact you are subject to Holiday Accrual and they are deducting it from Gross Pay is where your confusion comes from because the employment side of the costs of the holiday pay still need to be accounted for but no longer fit into the employer NI / Apprenticeship levy fields
If you had advanced holiday pay the calculation goes

contract total
- umbrella margin
- employer NI
- Apprencticeship Levy
= Gross Pay

However when it comes to Holiday Accrual the pay that is subject to tax is 12.07% less (because the holiday pay isn't being paid out now) so the Employer NI and Apprenticeship Levy is 12.07% less than it would be if the money was advanced. Hence the need for a balancing figure.

Now personally I think - holiday pay is a figure that should be explicitly deducted from the contract total to avoid this type of confusion but I suspect there is a reason why Paystream prefer to do it this way (it's going to be a combination of HMRC / there's probably a few pennies in it for them).