Umbrella companies...

semma19

Say I was offered a contract job by an organisation that has deemed the role to be inside IR53, and the agency who sourced me the role insist I use an umbrella company to get paid. 1. Can they insist, or can I use my ltd company? 2. Even if it's more complicated, is it more cost-effective to use my ltd company? 3. If I went the umbrella route, what would my earnings be in the eyes of the taxman? E.g. I want to buy a house and have to say what my earnings are per annum. Regardless of what I actually receive in my pay through an umbrella company (which is not what I'm asking), if my day rate is £200 yet I'm paid through an umbrella.. How do I work out my actual 'wage' to put on mortgage applications etc?
Let's say I was offered the contract at £200 a day for 4 months and I didn't do any other work during that tax year.

Pennywise

If an umbrella, your income is whatever gross wage is shown on your payslips, which will usually be the day rate less employers NIC. Other deductions such as the umbrella management fee, pensions, etc will usually be shown further down the payslip, so won't affect the Gross.

So, on £200 per day, if employers NIC was £25, your gross wage would be £175 per day. That would usually be what banks and other lenders would base your borrowing ability on.

If you contracted through your own company, banks/lenders would usually use the figure for your combined dividends and wages from the company.

TheCyclingProgrammer

If you already have your own Ltd company it seems to me that it would be much less hassle to simply use that and treat it as inside IR35 income and handle accordingly. Why pay umbrella admin fees and suffer other unnecessary deductions when you don't have to?

unforeseen

The one snag with using your own limited company for inside IR35 these days is that the tax and NI are taken at source before paying your company. Because they do not have your tax details they will be taking the tax using BR which you can't claim back until the end of the tax year.

At least with an Umbrella they will be paid the full amount and use your tax code to pay the correct tax

TheCyclingProgrammer

unforeseen wrote: »

The one snag with using your own limited company for inside IR35 these days is that the tax and NI are taken at source before paying your company. Because they do not have your tax details they will be taking the tax using BR which you can't claim back until the end of the tax year.

Only if the client is in the public sector. The rules for private sector clients haven’t changed (yet).

semma19

It's public sector.
So it's much better to use my company despite the delayed gains from this?

unforeseen

In which case it won't normally be advertised as inside IR 35. It would be left to the contractor/their accountant or umbrella to decide and act accordingly.

If it is advertised as inside IR35 then 99.99% of the time it will be a public sector role.

unforeseen

stephanieemma wrote: »

It's public sector.
So it's much better to use my company despite the delayed gains from this?

It makes no difference. You won't be able to claim any of the normal tax breaks that you normally claim. The pay you would get into your company is your pay not the company's money to the pay you a low rate and dividends.

semma19

It honestly makes no difference whatsoever? Even with the lack of umbrella company fees?

TheCyclingProgrammer

stephanieemma wrote: »

It honestly makes no difference whatsoever? Even with the lack of umbrella company fees?

You would save umbrella fees and IMO you’re still better off using your Ltd company. A BR tax code won’t be too awful especially if you’re already a basic rate payer.

Fleur_OHagan

My umbrella company takes NI employer contributions from my top line as well as their Management fees and the employee NI. In all they take about a third of my top line after 20% tax. Is any of this a tax deductable expense?