PAYE, Ltd or Umbrella for contract role?

snuggywumple

Hello,
I am looking at my first contract role and the agency advertising it have asked to confirm how i would need to be paid before they can put my CV forward.

It is a day rate and they have mentioned PAYE, Ltd or Umbrella but although I have a basic understanding, and will be googling tonight (would like to give them a decision tomorrow if possible).

The Ltd / Umbrella rate is 20% higher than the PAYE rate, is this something that is worth pursuing or will the additional costs come to nearly that much anyway?

For a 6-8 month contract through PAYE would i be entitled to any sick or holiday pay?

Any guidance would be much appreciated!

Thanks

HappyMJ

I would go limited every time. You can set up a lmited company within a few hours. I used Blue Sky Formations. They will give you a referrall to Barclays to open a bank account. You can get insurance as soon as the company documents come through I got that through Simply Business. Once you have that you are away. 2 hours of work and you have a fully working limited company which you can use to start invoicing the client and getting paid. The HMRC will be notified you have a new company and you can either do the books yourself or employ an accountant to do that for you. An accountant can either charge weekly, monthly or any period depending on how much you want to do yourself.

Keep 30% of all income/profit aside for the tax man. Kep every single receipt you can get. Keep a mileage diary in the car and record every journey related to work.

It's easy enough when you know...it won't take long for you to pick it up. Umbrella companies will do it for you but I find the fees far too high for quite simple work.

InsideInsurance

Are you going to be inside or outside of IR35?

If you are inside it then the benefits of a Ltd reduces significantly and can be more questionable of its worth it or not.

Notmyrealname

20% above the PAYE rate? Well that benefits the agency in that case as it costs just over 25% above the hourly rate to employ someone.

Umbrella company isn't the way to do it. You pay a flat weekly fee that is the same whether you earn £50 or £500.

On PAYE you are entitled to holiday pay from the first hour you work.

snuggywumple

Thanks everyone - but I am even more confused now!

I have always worked in permanent roles, except my current one which is a fixed term contract (I took it after being made redundant). I am paid by an agency and it was just an annual salary level agree and I am eligible for 22 days paid holiday per year. This contract however is coming to an end in March so I am job-hunting again.

Most of the positions I am looking at are permanent roles, but a good sounding role has come up for a 6-8 month period. Not sure on IR35 rules, I am a Marketing Manager and it is a Marketing Manager role for a fixed period that many people could do, it is not a specialist consultant sort of role.

The recruitment agency say i need to choose between £X day rate PAYE or £X+20% for umbrella / Ltd. I do not want to disclose numbers but lets say £100 PAYE or £120 umbrella / ltd.

I asked the agency about annual leave and the answer was

"If you went PAYE you would be paid the holiday pay as you work. It would be added on to your daily rate so would be paid as you go along rather than when you are on holiday. With sick pay you have to have worked at the company a certain length of time and would need to be signed off after a prolonged period.Umbrella company you can get paid slightly more and claim back tax on certain expenses. You also get a lower bracket of tax.

£108 including holiday pay PAYE or £120 through an umbrella service" (numbers changed to match example above).

Hellpppppp!!!

InsideInsurance

http://www.hmrc.gov.uk/ir35/

Are you looking to do contacting long term or wanting to switch back to perm afterwards?

If its a one off you would probably be fairly safely below the radar of IR35 which means you could get the maximum tax advantages from using an Ltd but if it is worth the hassle is another question and would be partially dependent on what your day rate is.

If it more long term and your day rate is probably £350+ then Ltd can be more sensible as long as you are comfortable you will be outside IR35

KiKi

snuggywumple wrote: »

I asked the agency about annual leave and the answer was

"If you went PAYE you would be paid the holiday pay as you work. It would be added on to your daily rate so would be paid as you go along rather than when you are on holiday. With sick pay you have to have worked at the company a certain length of time and would need to be signed off after a prolonged period.Umbrella company you can get paid slightly more and claim back tax on certain expenses. You also get a lower bracket of tax.

£108 including holiday pay PAYE or £120 through an umbrella service" (numbers changed to match example above).

I presume the PAYE is through the agency as the employer instead of the company you'll be working for? Regardless, with PAYE you get SSP after three days off sick. Any company sick pay is contractual and at their discretion - so it may have a qualifying period.

The PAYE holiday that they have explained to you is 'rolled up' holiday pay and is unlawful *unless* it's separated out in your payslip and clearly indicated that it's in addition to your basic rate.


Umbrella company - yes, you can offset expenses against tax, but you aren't in a lower tax bracket - that doesn't exist. That includes some travel, subsistence (£5 a day, I think).


Personally, I'd go for PAYE *if* it was direct employment with the company.
If not, I'd go Umbrella - BUT only one that doesn't charge. I'd go with a company like Springboard (you can use their basic service for free, and it includes insurance). If the agency are making you choose a specific Umbrella, I'd be questioning why.


Just my perspective, though!
KiKi

snuggywumple

I have no idea if the PAYE would be through the agency or from the employer directly?

I guess it is much easier if I just mention the numbers (I wish it was £350 day rate)!

£250 PAYE, £270 with holiday
£300 umbrella / ltd.

does that make it clearer?

As for whether it would be a one off contract and then back to perm, I really have no idea!

KiKi

snuggywumple wrote: »

I have no idea if the PAYE would be through the agency or from the employer directly?

I guess it is much easier if I just mention the numbers (I wish it was £350 day rate)!

£250 PAYE, £270 with holiday
£300 umbrella / ltd.

does that make it clearer?

As for whether it would be a one off contract and then back to perm, I really have no idea!

If the holiday pay is rolled up it will be employment with the agency.

For a contract this simple, I'd go Umbrella, one with very low charges, and claim back all my expenses.

KiKi

Notmyrealname

The PAYE will be from the agency.
If those figures are per week then most of the extra money you get for doing it as umbrella will be swallowed up by their fee.

PAYE you have rights and protection under employment law. Ltd/Umbrella you have none.

KiKi

Notmyrealname wrote: »

The PAYE will be from the agency.
If those figures are per week then most of the extra money you get for doing it as umbrella will be swallowed up by their fee.

Yes, fees will be involved, but if you go with one with very low fees expenses can offset that. Esp if the OP's travel expenses are high.

PAYE you have rights and protection under employment law. Ltd/Umbrella you have none.

With a 6-8 month contract this won't make a difference. Regardless, she's a contractor anyway. AFAIK, whether she's PAYE with the agency or Umbrella, she's not directly employed by the company and they can dispense with her at any time.

KiKi