IR35 and Umbrella Companies - Am I an employee or an employer

presuminged57

**Please note the category may not be fully appropriate. I would suggest my discussion could sit within 'Reclaim PPI'**

I am a long standing contract worker (12+ yrs). I used to work through a limited company but since 2019 like many others I have been forced to work within IR35, and more crucially through an Umbrella company.

My first question to provoke an honest discussion is this.

I apply for a role with an advertised rate (for the sake of argument) of £250 pd (Umbrella)

Is that rate 'my' day rate? 

A_Geordie

Hi

This kind of question is definitely not appropriate for the Consumer Rights board, but to answer your question, it depends on what the advertisement says. It's not clear whether the £250 rate is before or after deductions are made.

From the limited number of contracts I've seen that are inside IR35, the advertised day rate is your gross day rate. I have seen one or two sneaky advertisements that specify a day rate but fail to mention its the day rate charged by the umbrella company to the client and therefore the actual day rate of the contract will be less than what has been advertised. 

DullGreyGuy

Firstly you'd need to check if the £250 is the all in rate or if there is any uplift, when the changes to IR35 occurred some were paying an extra bit for those via umbrellas but at my level these days they tend to show the all in rate rather than saying its £X + £Y umbrella compensation. 

You will be an employee of the umbrella company. The umbrella company will be paid £250/day, from that it will deduct the appropriate costs (employers NI, apprenticeship levy, weekly fee and employers contribution to pension if you are in the pension), what is left is your gross pay and from that the normal employee deductions will be taken (income tax, national insurance etc). 

So what "your day rate" - better called gross daily pay will be depends on your income and what fee your preferred (or the recruitment agent's preferred) umbrella company charges. If you use any of the umbrella's calculators they'll take it to the next step and deduct your employee taxes and show you a net pay

With umbrellas you have the choice of having paid holiday or unpaid, obviously if you choose paid then the employer deductions will include an amount for holiday accrual. Unlike normal employment if you dont take the holiday you get paid it as a lump sum at the end of the financial year

eskbanker

presuminged57 said:

**Please note the category may not be fully appropriate. I would suggest my discussion could sit within 'Reclaim PPI'**

I can't see anything remotely resembling a connection between your question and reclaiming PPI, but there is an employment board, which would seem a more obvious place:

https://forums.moneysavingexpert.com/categories/employment-jobseeking-training

DE_612183

I would say yes - the £250 is your day rate subject to tax and the umbrella taking a cut.

You will be an employee of the umbrella company for tax purposes.

Grumpy_chap

presuminged57 said:

**Please note the category may not be fully appropriate. I would suggest my discussion could sit within 'Reclaim PPI'**

I am a long standing contract worker (12+ yrs). I used to work through a limited company but since 2019 like many others I have been forced to work within IR35, and more crucially through an Umbrella company.

My first question to provoke an honest discussion is this.

I apply for a role with an advertised rate (for the sake of argument) of £250 pd (Umbrella)

Is that rate 'my' day rate? 

I think the most appropriate board for this thread would be "Employment, job seeking and training".  Not a Consumer Rights issue and really cannot see how it has anything to do with PPI.

Anyway, the normal expectation from the question as stated would be that the £250 per day is the amount paid to the Umbrella Company.
The UC will then deduct:

• Their "margin" (fee)
• Allowable expenses - usually "nil" - which are paid to you without deduction of tax / NI.
• Employer's NI
• Apprenticeship Levy
• Employer's pension contributions

This will then leave your gross pay, from which deductions are made as for any other employee:

• Employee's pension contributions
• Income Tax
• Employee's NI

You are then paid the net pay.

The most common means to reduce the immediate liability to taxation is to increase employee's pension contributions, via salary sacrifice is possible.

How does the above compare with your experience, given you say you have been working through UC for five years since 2019?

If there is a more involved question, it will be easier of you set out the full situation and the full question / concern you are seeking assistance with.  Drip feeding details and queries, as indicated by your comment "my first question..." is not the most efficient way to reach a fully informed responses and can risk incorrect or incomplete comments being made.

Or, is this not really a concern / question that you need assistance with, but just for the sake of discussion, as you indicate "to provoke an honest discussion"?  Of so, the MoneySavers Arms may be a better part of the forum and, please remember that the forum is not for political commentary if the intended direction is towards whether IR35 is or is not correct.

DullGreyGuy

DE_612183 said:

I would say yes - the £250 is your day rate subject to tax and the umbrella taking a cut.

You will be an employee of the umbrella company for tax purposes.

The umbrella takes more than a their cut from the £250, they also take all the employer expenses like employers NI, apprenticeship levy and employers pension contributions. As the contracts are constructed, at least in my experience, the £250 is their day rate, you get paid NMW plus the surplus monies as a weekly/monthly bonus for the difference between the £250 less margin and employers expenses and your NMW salary. 

eskbanker

Grumpy_chap said:

Or, is this not really a concern / question that you need assistance with, but just for the sake of discussion, as you indicate "to provoke an honest discussion"?  Of so, the MoneySavers Arms may be a better part of the forum

I thought that had been switched off during Covid and never re-enabled?

https://forums.moneysavingexpert.com/discussion/6160122/money-savers-arms-including-discussion-time-statement

Grumpy_chap

eskbanker said:

Grumpy_chap said:

Or, is this not really a concern / question that you need assistance with, but just for the sake of discussion, as you indicate "to provoke an honest discussion"?  Of so, the MoneySavers Arms may be a better part of the forum

I thought that had been switched off during Covid and never re-enabled?

https://forums.moneysavingexpert.com/discussion/6160122/money-savers-arms-including-discussion-time-statement

Yes, so it has.

Marcon

presuminged57 said:

**Please note the category may not be fully appropriate. I would suggest my discussion could sit within 'Reclaim PPI'**

I am a long standing contract worker (12+ yrs). I used to work through a limited company but since 2019 like many others I have been forced to work within IR35, and more crucially through an Umbrella company.

My first question to provoke an honest discussion is this.

I apply for a role with an advertised rate (for the sake of argument) of £250 pd (Umbrella)

Is that rate 'my' day rate? 

Why do you want a discussion - wouldn't an actual answer be of more use, unless this is a hypothetical question?

Either way, you'll get all the info you need at https://www.litrg.org.uk/working/umbrella-company-workers 

presuminged57

My apologies for not responding sooner. I have been away.

Many thanks for the responses but just to clarify, I have been a contractor for over a decade and have been employed via umbrella companies for some time so I am very well experienced on how they operate and the deductions that are made before I see any money. 

I'm being a little pedantic regarding the category that this subject sits in because in regard to Consumer Rights it could legitimately apply since, I feel, a reasonable argument can be made that my application for an Inside IR35 role for £250 pd is a wholly misleading statement and may cause me to make unwise choices as a result...which could lead into the realm of Reclaim PPI since the whole basis of the PPI was the concept of unknown or hidden costs.

A Hypothetical

I am a wet behind the ears new contractor who is looking into a role for £250 pd (Inside IR35) for a contract that lasts a year.

I go into MoneySavingExpert's income tax calculator work out that approximately I can expect to earn £250 * 235 (Approx number of working days a year (minus 4 wks holiday) or £1,250 per week. I conclude I am happy with this rate as it meets with my financial obligations. I accept the role.

I am then told I HAVE to work via a particular umbrella company who will subsequently tell me they will deduct Employers NI (though I am not an employer, (I recognize there are other smaller deductions)). So therefore my rate is not £250 pd (£1250pw) but rather £222.5pd (£1,112.5 pw) before personal tax. This no longer meets my financial obligations and I am put in an awkward situation to say the least.

A very real conversation I had, just this week...I inquire about a role, for £250pd, told I have to work through a particular umbrella company, at which point I state to them that the rate is NOT £250pd, its £222.50pd, and I have to again have awkward conversations with the agency/client/employer to say I now need a day rate of £282 to make up for the paradoxical situation where as an employee I have to pay my employers/clients tax obligations as well as my own. 

Its purely anecdotal by I have spoken to three permies, a colleague, a close friend and my wife, all of which could be argued are more intelligent than I am, and none of them were aware that their employers made NI contributions for them.

As a side note I have been in conversation with an professional organisation who deals directly with IR35 and the issues round it and an hour ago I received a communication from them where they directly and unambiguously stated that to work inside IR35 is to pay employers NI. I am happy (well not exactly happy) to be corrected but in all of my analysis of IR35 on contractor websites and forums I have not been able to find any source that can support this claim.