3 month contract

EconomicsGirl

I took vol. redundancy recently. Today had an interview for a 3 month post and I think they may well offer it. The role is interesting but the recruitment agent asked if I wanted to be paid using an umbrella organisation or another route - paye. The second route you get 12% holiday pay, the first route no holiday pay but a £30 a day higher rate.

Does anyone know which is the best route to take (it lower rate tax on its own though was given 3 months PILON so guess potentially could go higher rate but unlikely). Found something saying you are caught by IR 35 if go umbrella route. It all means very little to me.

Thanks for any help.

agrinnall

It really depends on how much your net pay is by each route, you'd need to find out how much you have to pay to the umbrella company and when they'd pay you. I doubt if IR35 will be an issue if you go the umbrella company route, that's a far bigger threat if you set up as a limited company (I eventually complied with IR35 for my limited company until I gave it up 8 years ago but I believe there are now quite a few people who are ignoring it).

scheming_gypsy

Will you be planning on taking holidays in those 3 months? although you'll get £30 a day PLUS going through the umbrella company.

PAYE - means you'll be paid as employee
umbrella - you'll be an employee of the umbrella company so you'll pay £x (i pay £25) a week for them to do my wages, and you'll also pay employers NI. You can also claim tax allowances on £5 a day lunch (10 if you're out of the house for more than 10 hours) and any mileage / parking etc.

So if you're on £100 a day PAYE you'll earn £500 a week before tax and NI

if you're going through the umbrella company on £130 a day you'll earn £650. Then they deduct their charges and employers NI so lets say £40 which leaves you £610
then they deduct your mileage at 45p a mile, receipted expenses (parking etc) and meals.. When they've got the figure that's left they deduct tax.

to make it easier... pop the hourly rate etc in here and it'll work it out for you http://www.paystream.co.uk/Umbrella_Overview/default.aspx


IR35 won't affect you as you'll be classed as an employee of the umbrella company.

smileylondongal

Thank you for posting this - I've always wondered about this and I'm sure I'll come across the same when I start looking for jobs in the coming months.

EconomicsGirl

Thanks for the replies. Didn't get the job in the end but when I looked up how much you'ld earn after all the costs it would have only just covered my childcare and travel etc so probably wouldn't have been worth doing anyway. Its still very useful to know for the future though.

burnoutbabe

when i looked at PAYE (with the recruitment agency) versus umbrella, it made no sense to go umbrella as they charged £80 a month to do the payroll and the amount i could claim in travel/lunch was say £200 a month, so at 40% it would save me £80 in tax. So not really worth bothering with.

Whichever way i went, say my rate was £300 per day, i'd have 11% employers NI taken out of that anyway, then normal tax and employee NI. With the PAYE they just split my take home into normal pay and holiday pay to get back to the total amount.

I can take whatever holidays i want, i just don't get paid that day.