Contract work

MeeNorr

Hi,

I've been offered the chance to work as a contractor in a driving job on a 6 month contract. There is a good chance the contract will be renewed after the 6 months but I doubt I'd want to do it for longer than a year or so. The agency have said I can either be paid through their PAYE on a lower rate, or for a higher rate (about £2 an hour more) and be employed through an umbrella organisation. The higher pay rate is the highest paying position I've seen advertised within a practical daily travelling distance.

Having spoken to 2 umbrella companies they've told me I'd be better setting up as a limited company (they do all the paperwork in return for a % of my weekly gross invoice income). I can then claim tax relief on things such as travel to and from work and subsistence which again they look after.

Has anyone got any experience of working in this way. I've always been a PAYE employee before and long term this is what I'm expecting to go back to after this temp contract (assuming I accept it).

Thanks

elsien

Have you tried running the figures through one of the umbrella net pay calculators to see what you'd be taking home if you went down that route? If you've got a rough idea of expenses, then you can put those in as well to give you an idea of which way to go.

This might give you a bit more info.
http://www.contractorcalculator.co.uk/paye_umbrella.aspx

toffifee

I'd want to know whether going through the agency means I only pay personal tax and NI (like you would as an employee anywhere else).

Going through the umbrella means you will also have to pay employer's NI + their (monthly?) fee, but this may be outweighed by the ability to offset expenses and the extra £2 per hour. The umbrella company I use lets me claim tax relief on travel and subsistence for the first two years of a contract, so from that point of view there's no advantage to limited. I'd be wary of the advice from the umbrella company - they are just trying to sell their services after all.

If you use the ltd company route, you'd need to look at whether you're caught by IR35 (is the job you're doing basically that of an employee in terms of them telling you want to do, and when, and you not being able to send someone else in your place - I'm simplifying greatly). If you are, a big proportion of the advantage of using a limited company disappears i.e. you can't pay yourself minimum wage (with tax and NI being applied) and then give yourself the rest of the money as dividends (with less tax/NI to pay - I'm hazy on the details - I am caught by IR35).

I suggest you work out your likely IR35 status and set up some spreadsheets with the various options to see how the numbers stack up.

If I were faced with that choice, with my contract and IR35 status, and hourly rate, I'd go with the agency PAYE. There might be a little bit more in my pocket each month by going limited, but for a 6 or 12 month contract I would not want to set up a company.

MeeNorr

Thank you both for your replies.

I'm concious that the two umbrella organisations were both trying to 'sell' me their services which means I'm not getting unbiased advice/information from them.

The £2 an hour lower rate PAYE through the agency wouldn't make it worthwhile me doing due to the distance to travel to work with petrol costs etc, it works out minimum £100 a week worse off.

When I first contacted the agency I didn't realise agency temp work would be so complicated, with limited companies, business bank accounts etc! I have a meeting tomorrow with them and I won't be signing anything in their office as I need to do more research first.

The type of work I'd be doing as a driver is I'd be given a rota 3-4 weeks ahead telling me what shifts I'd be doing. Unlike some types of contracting (ie subcontracting) I can't send somebody else in my place!

Edit - Having just done an online questionnaire it says that I do fall into IR35 status.