Help needed: LTD vs PAYE vs Umbrella

TonyPDHM

Hi again,

Thanks KiKi, SteProud, Hammyman and Russe11 for all of your comments and ideas.



To clarify, I think I now have four options:

1. PAYE with the agency at £9.35 and 28 days paid holiday
2. LTD with the agency at £11.93 and work out my own tax and expenses and no paid holidays
3. LTD with the agency at £11.93 through a free umbrella company who will work out the tax for me but won't do expenses and no paid holidays
4. LTD with the agency at £11.93 through a £27 a week umbrella company who will work out all tax and expenses for me and no paid holidays

A friend of mine is doing the same job through the same agency already, and he's been using the £27 a week umbrella company which wants to sign me up. If you're new to this demusing world of payment options then you're led to believe this is the default and best method. He's not had any issues with them, but he's only submitting something like £35 a week in meal expenses, so I don't think he's getting enough money back in tax to justify the weekly fee.

With Springboard's free option he wouldn't be able to claim for meals, but he'd be saving money overall. So I've recommended he take a good look at their service when he gets back from his holiday.

Back to my situation. I read elsewhere on this forum a post by the user Premier which advised: "A very simple rule of thumb, take your contractor pay and divide by 1.27 and that will give you a rough equivilent of an employed rate. (taking into account employers NICs, holidays, etc)"

That seems to work fine with the rates I've been offered, as 11.93 divided by 1.27 is 9.39, which is close enough to the PAYE rate of 9.35 being offered by the agency.

So, this is my understanding (and please correct me if I'm wrong), no matter if I choose option 1 or option 3 I'll be taking home roughly the same money after tax and taking into account getting or not getting holiday pay.

Based on £9.35 an hour for 37 hours thesalarycalculator.co.uk says I'll take home £280.67 a week with paid holidays.

Based on £11.93 an hour for 37 hours and no expenses Springboard's telephone advisor said I'll take home £320.41 a week with unpaid holidays (this is very different from their online calculator).

I don't know how to work out the weekly monetary value of paid holidays properly, but if I add the £1.13 holiday pay rate of the PAYE option to the basic rate being offered I should end up with a figure directly comparable to the Springbaord rate, right?

Based on £9.35 + £1.13 an hour for 37 hours thesalarycalculator.co.uk says I'll take home £309.10 (with effectively unpaid holidays)

So to me it looks as though I'll be £11 better of a week working through Springboard rather than PAYE through the agency. Is that about right?

It's not a lot of difference for the big deal they make it all out to be (and the amount of brainwork I'm having to put in), so my instinct is that I should take the simple option and just be directly employed through the agency on PAYE. I figure that way I only have to deal with one bunch of muppets when they inevitably mess up my wages

Am I missing anything here, guys?

Looking forward to your thoughts,
Cheers,
Tony

ps - I watched Death Proof last night... Great movie! Just had to share that

Hammyman

KiKi wrote: »

Hammyman - it seems that the company only employ these roles through an agency as contractors. They're not temp roles, so the agencies insist you work through a limited company. PAYE isn't an option - they just won't take you on.

KiKi

So are you paid for the time you're at this place by the agency or the company you're placed at? No. You're paid by the agency. Therefore you are an employee of the agency. This does not meet the criteria for self employment which is why the agency and others like it want you to use an umbrella company or be Ltd. If it was legitimate self employment, they'd accept sole traders but don't because its !!!! covering.

scheming_gypsy

.... and because you're working through an agency as a contractor, it's a temp role.

Hammyman

TonyPDHM wrote: »

So, this is my understanding (and please correct me if I'm wrong), no matter if I choose option 1 or option 3 I'll be taking home roughly the same money after tax and taking into account getting or not getting holiday pay.

Based on £9.35 an hour for 37 hours thesalarycalculator.co.uk says I'll take home £280.67 a week with paid holidays.

Based on £11.93 an hour for 37 hours and no expenses Springboard's telephone advisor said I'll take home £320.41 a week with unpaid holidays (this is very different from their online calculator).

I don't know how to work out the weekly monetary value of paid holidays properly, but if I add the £1.13 holiday pay rate of the PAYE option to the basic rate being offered I should end up with a figure directly comparable to the Springbaord rate, right?

Based on £9.35 + £1.13 an hour for 37 hours thesalarycalculator.co.uk says I'll take home £309.10 (with effectively unpaid holidays)

So to me it looks as though I'll be £11 better of a week working through Springboard rather than PAYE through the agency. Is that about right?

It's not a lot of difference for the big deal they make it all out to be (and the amount of brainwork I'm having to put in), so my instinct is that I should take the simple option and just be directly employed through the agency on PAYE. I figure that way I only have to deal with one bunch of muppets when they inevitably mess up my wages

Am I missing anything here, guys?

Yes. The 12.8% employers NI you will have to pay out of your gross pay if you go for anything other than PAYE.

Holiday pay is worth around 11% for back of fag packet calculations.

The simple fact is this. You are worse off with an agency as Ltd or umbrella company. Fact. The biggest expense you can claim, travel, you can also claim through PAYE.

It is a con, plain and simple, and lots of agencies and umbrella companies are screwing over agency workers left, right and center. The agencies get to pay you less than you were getting paid on PAYE whilst at the same time wiping their hands of employment law. The umbrella companies get to charge you 4 times as much as it would to get an accountant to do it for you.

The only good thing is that the whole stinking house of cards will come tumbling down soon now HMRC is looking for cash. The bad part is many employees are going to find themselves with a tax bill.

TonyPDHM

Hammyman wrote: »

So are you paid for the time you're at this place by the agency or the company you're placed at?

I don't have the option to be paid directly by the water company I will be doing work for. Presumably (like a lot of other firms these days) they don't want to employ their own permanent staff for economic reasons.

If I go PAYE I will be employed by the agency to work for the water company.

If I go LTD I think I will be employed by the agency, or possibly myself.

If I go LTD and use an umbrella I think I will be employed by the umbrella, or possibly myself.


At the moment I'm leaning towards going PAYE with the agency, unless anyone can give me a good reason not to, or can point out how I'll be missing out on tons of extra cash... Any takers?

Cheers,
Tony

TonyPDHM

scheming_gypsy wrote: »

.... and because you're working through an agency as a contractor, it's a temp role.

Please excuse my general ignorance of employment law and taxes, but what's the significance to me of being classed as a temp?

Also, which of my options (1,2,3 or 4) would result in me being a temp?

Cheers,
Tony

SteProud

TonyPDHM wrote: »

I don't have the option to be paid directly by the water company I will be doing work for. Presumably (like a lot of other firms these days) they don't want to employ their own permanent staff for economic reasons.

If I go PAYE I will be employed by the agency to work for the water company.

If I go LTD I think I will be employed by the agency, or possibly myself.

If I go LTD and use an umbrella I think I will be employed by the umbrella, or possibly myself.


At the moment I'm leaning towards going PAYE with the agency, unless anyone can give me a good reason not to, or can point out how I'll be missing out on tons of extra cash... Any takers?

Cheers,
Tony

We advise our umbrella guys that if they are earning over £35K a year and are in it for the longterm, then they will always be better off working via their own Ltd. This is having you own business in its truest sense.

Agency PAYE is absolutley fine and sounds like a decent option for you. Just make sure they have the proper insurance in place. Employers' Liability etc.

The benefit of going down the umbrella route is in claiming legitimate expenses and it sounds like you won't have enough to justify.

One last little point. A piece of legislation comes in in October called the Agency Workers Regulations and this might mean your agency will be forced to send you down the umbrella route anyway.

scheming_gypsy

Hammyman wrote: »

It is a con, plain and simple, and lots of agencies and umbrella companies are screwing over agency workers left, right and center. The agencies get to pay you less than you were getting paid on PAYE whilst at the same time wiping their hands of employment law.

I have to disagree with that. I get paid a lot more contracting than if i was on PAYE and i've never been able to claim travel allowances whilst on PAYE.
If i do a 50 week year my current take home would be £22,500. If i was PAYE doing the same job they'd probably want to pay a maximum of £18,000 a year for the role as it's a basic administrator role.

companies are willing to pay more for a temp because they don't have to mess about with all the paperwork and pay NI and holiday and sick pay etc. They pay an invoice and that's it and don't have to mess about with anything else that goes with having PAYE staff.

i don't disagree about the umbrella company rates but you can change that by going properly self employed.

SteProud

Hammyman wrote: »

So are you paid for the time you're at this place by the agency or the company you're placed at? No. You're paid by the agency. Therefore you are an employee of the agency. This does not meet the criteria for self employment which is why the agency and others like it want you to use an umbrella company or be Ltd. If it was legitimate self employment, they'd accept sole traders but don't because its !!!! covering.

That's not true. The reason most agencies and hirers avoid sole traders is that there is no garuantee that they have the proper insurance in place.

TonyPDHM

Hammyman wrote: »

12.8% employers NI you will have to pay out of your gross pay if you go for anything other than PAYE

Hmmm, I'd better check with my mate who's using the umbrella company then. I'm not sure he knows he's supposed to pay NI himself.