Help to decide on PAYE or Umbrella Company

**cojak** · 1 December 2019, 09:16

Are you inside IR35 now?

I would go for the 1st option - 3 months using your Ltd won’t be worth the hassle, but you might want to read this.

https://www.contractoruk.com/forums/...ould-i-go.html

**malvolio** · 1 December 2019, 10:12

If I'm reading that right, your client is breaking the new law. Your day rate is £350. Under the new rules, you get paid that less income tax and Employee's NICs, nothing else. The employee NICs - which you seem to be referring to, are not your liability and should not be deducted from your advertised day rate.

If they are saying your day rate will drop to £280 for the new contract to cover their additional costs, then I would be looking to walk away, rather quickly, since that is exactly the same thing that is proscribed in Chapter 10 of ITEPA, which is the legislation driving the April changes.

So before making any decisions, first understand from them in writing why they think the role is going to be inside IR35 (assuming you think it isn't now) and what exactly they are offering. Reducing your income to do the same job should not be any kind of an option.

**Officer Ricky** · 1 December 2019, 13:37

Originally posted by cojak View Post

Are you inside IR35 now?

I would go for the 1st option - 3 months using your Ltd won’t be worth the hassle, but you might want to read this.

https://www.contractoruk.com/forums/...ould-i-go.html

Thanks for the link, really useful information. A bit more about my situation might help here. I’m actually starting a new role in Jan and the 350pd is an increase from my previous rate of 280pd (not driven by ir35 expected change). I will be considered as inside ir35 from April. This would not change as the business is taking that approach for all contractors.

**Officer Ricky** · 1 December 2019, 13:44

Originally posted by malvolio View Post

If I'm reading that right, your client is breaking the new law. Your day rate is £350. Under the new rules, you get paid that less income tax and Employee's NICs, nothing else. The employee NICs - which you seem to be referring to, are not your liability and should not be deducted from your advertised day rate.

If they are saying your day rate will drop to £280 for the new contract to cover their additional costs, then I would be looking to walk away, rather quickly, since that is exactly the same thing that is proscribed in Chapter 10 of ITEPA, which is the legislation driving the April changes.

So before making any decisions, first understand from them in writing why they think the role is going to be inside IR35 (assuming you think it isn't now) and what exactly they are offering. Reducing your income to do the same job should not be any kind of an option.

If I understand you correctly, the agent should still pay me £350 after employee NIC. Does that mean only income tax and NI contribution are to be deducted from my day rate? If this is true, would you say umbrella company is a better option for me as they would pay the entire £350 to the umbrella company.
Thanks for the advice

**malvolio** · 1 December 2019, 17:49

Originally posted by Officer Ricky View Post

If I understand you correctly, the agent should still pay me £350 after employee NIC. Does that mean only income tax and NI contribution are to be deducted from my day rate? If this is true, would you say umbrella company is a better option for me as they would pay the entire £350 to the umbrella company.
Thanks for the advice

I said that £350 is the advertised rate for the job you're doing now. Strictly speaking, that should be the rate for the revised role under IR35. If they are going to knock off £70 to cover their overheads, then that is marginally illegal behaviour. Although it would take a court case to prove that properly which I doubt will happen.

I also said that the market rate to you is £350, and if they want you to stay then that is what they should be paying. How you react to an enforced £70 cut per day and no expenses allowable is up to you. Personally I'd look elsewhere, but that may not be an option open to you. Remember that you are still paying the same taxes overall so that is a real pay cut: the only it they can rightfully argue is that they are bearing the 13.8% Employer NICs now, so the most they can justifiably reduce your rate by is £48 and offer a day rate of £300, but that may not cover your losing any business expenses you can currently claim.

It's also worth noting that the Tories (as well as the Illiberal AntiDemocrats) are promising a review of both IR35 and the April changes. I wouldn't hold my breath...

**ComplianceLady** · 2 December 2019, 14:09

Originally posted by malvolio View Post

I said that £350 is the advertised rate for the job you're doing now. Strictly speaking, that should be the rate for the revised role under IR35. If they are going to knock off £70 to cover their overheads, then that is marginally illegal behaviour. Although it would take a court case to prove that properly which I doubt will happen.

I also said that the market rate to you is £350, and if they want you to stay then that is what they should be paying. How you react to an enforced £70 cut per day and no expenses allowable is up to you. Personally I'd look elsewhere, but that may not be an option open to you. Remember that you are still paying the same taxes overall so that is a real pay cut: the only it they can rightfully argue is that they are bearing the 13.8% Employer NICs now, so the most they can justifiably reduce your rate by is £48 and offer a day rate of £300, but that may not cover your losing any business expenses you can currently claim.

It's also worth noting that the Tories (as well as the Illiberal AntiDemocrats) are promising a review of both IR35 and the April changes. I wouldn't hold my breath...

I think this is a bit misleading. There's obviously an argument that £350 pay rate is the market rate, but to suggest that offering a contract on a lower rate to account for increased tax liabilities on the client/agency part is 'marginally illegal behaviour' is far from accurate in my view.

It would be illegal if the client/agency fails to terminate a contract and offer a new contract at a reduced rate and simply operates deducts ERNICS from the previously agreed rate but that is not suggested.

There's nothing remotely illegal about saying 'We'll offer you a contract on £350 per day if the role is outside or £280 per day if the role is inside'. It might be commercially unattractive but it's not illegal.

**Underscore Pt2** · 2 December 2019, 16:05

Is there any reason why you cant go direct from Umbrella to Client? Agency just taking a cut for nothing now?

**DolanContractorGroup** · 2 December 2019, 17:01

Originally posted by Underscore Pt2 View Post

Is there any reason why you cant go direct from Umbrella to Client? Agency just taking a cut for nothing now?

Hi

Many contractors do engage with the client directly through their umbrella employer. However, once there is a recruitment agency in the supply chain, it's going to be hard to remove them without satisfying some of their conditions.

Kind regards

Zeeshan

**lucyclarityumbrella** · 3 December 2019, 10:07

Originally posted by Officer Ricky View Post

I'm thinking of option 2 but struggling to decide if I should go with PAYE or Umbrella. My daily rate is £350pd, if I was to use PAYE Agency will pay ~£280pd (after employer tax)

Hi Officer Ricky
PAYE at £280.00 per day will NET you £4,230.29 per calendar month
Umbrella at £350.00 per day will NET you £4,577.14 per calendar month
Holiday pay will be included in the day rates (definitely for umbrella) so you need to make sure that you account for that when it comes to taking annual leave.
HTHs but if you want a chat let me know

Help to decide on PAYE or Umbrella Company