PAYE or consultancy

silambwill

Hello all. First time poster here!

I am applying for a job - it's a 3-year contract and if successful I can either choose to be PAYE at 26k-28k a year or on a self-employed consultant contract at 30k a year.

I know both have pros and cons but which would see me better off financially? What other perks are there or downfalls of each?

We're expecting a baby next year so I'm guessing the paternity thing is quite a big one!

Thank you all.

Grumpy_chap

silambwill said:

Hello all. First time poster here!

I am applying for a job - it's a 3-year contract and if successful I can either choose to be PAYE at 26k-28k a year or on a self-employed consultant contract at 30k a year.

I know both have pros and cons but which would see me better off financially? What other perks are there or downfalls of each?

We're expecting a baby next year so I'm guessing the paternity thing is quite a big one!

Thank you all.

That margin difference between PAYE and "self-employed consultant" does not appear to be large enough.

There are different ways that you can be "self employed consultant" and it makes a difference whether inside or outside IR35, sole-trader, own Ltd Co., or Umbrella Company.  If it is a three-year contract, you will almost certainly be deemed inside IR35 so that probably also means via an Umbrella Company.

Anyway, that is all probably moot if the figures are looked at in a simple way:

Employed ay £26k (lowest indication).  Employer's NI (rates from April) on £21k at 15% = £3.15k.
That is already a "cost to employ" of £29.15k
Plus the employer has to pay auto-enrolment pension contributions.
Plus the employer has to pay SSP (or contractual sick pay if better)
Plus the employer has to pay paternity
Plus, at the end of the 3-year contract, the employer has to either redeploy or pay redundancy.
Pay rises for direct employed staff are possibly more likely than a "self employed consultant".

The "self employed consultant" rate needs to cover all of those elements of the "cost to employ" and, clearly, will not based on the figures indicated.

If you can negotiate a salary at a little above the lowest indication for the job range, then the "cost to employ" as staff will likely exceed the £30k offered for "self employed consultant" even just considering salary plus Employer's NI.

There are few tax advantages that can be taken as "self-employed consultant", especially if the role is inside IR35 via UC.  The easiest win is if you plan to make substantial pension contributions, but that will be restricted by NMW.

In your discussions, remember that NMW from April will be £12.21.  For 40 hours per week, 52 weeks per year, that works out to £25.4k so only a small amount below the lower end of the salary range indicated.

With those figures - salary £26k - £28k or "self-employed consultant" at £30k, the decision seems to be a no brainer.

DullGreyGuy

Grumpy_chap said:

silambwill said:

Hello all. First time poster here!

I am applying for a job - it's a 3-year contract and if successful I can either choose to be PAYE at 26k-28k a year or on a self-employed consultant contract at 30k a year.

I know both have pros and cons but which would see me better off financially? What other perks are there or downfalls of each?

We're expecting a baby next year so I'm guessing the paternity thing is quite a big one!

Thank you all.

That margin difference between PAYE and "self-employed consultant" does not appear to be large enough.

There are different ways that you can be "self employed consultant" and it makes a difference whether inside or outside IR35, sole-trader, own Ltd Co., or Umbrella Company.  If it is a three-year contract, you will almost certainly be deemed inside IR35 so that probably also means via an Umbrella Company.

Anyway, that is all probably moot if the figures are looked at in a simple way:

To be truly self employed it would be a sole trader so the IR35 doesn't become an issue. 

As a sole trader assuming no allowable expenses your take-home would be about £25,450

As an employee it would range from £22,200 to £23,700 but you'd have paid holiday plus circa £800 or more in pension contributions from the employer. 

Its odd for a sole trader to be paid an annual figure, its normally daily or hourly so its hard to say if the £30,000 includes the fact you'll take 5.6 weeks off a year or assumes you work every day. The only way I can see the Sole Trader being appealing is if it assumes 5.6 weeks off any you dont intend to take that else the employee model is much better

Grumpy_chap

DullGreyGuy said:

To be truly self employed it would be a sole trader

The OP would need to confirm, though, that is what the employer meant as we all know the phrase "self employed" can be used loosely and not always meaning sole trader (which it should).

TheSpectator

It shouldn't really be a choice and the fact you are being offered it would make me wonder about the Employers motives.

I'm sure HMRC would be interested in them.

Marcon

silambwill said:

Hello all. First time poster here!

I am applying for a job - it's a 3-year contract and if successful I can either choose to be PAYE at 26k-28k a year or on a self-employed consultant contract at 30k a year.

I know both have pros and cons but which would see me better off financially? What other perks are there or downfalls of each?

We're expecting a baby next year so I'm guessing the paternity thing is quite a big one!

Thank you all.

Being an employee would be considerably better in financial terms - and plenty of others.

If you're expecting a baby next year, now isn't the moment to be striking out on your own when you clearly have zero experience or knowledge of self employment or running your own limited company. The learning curve when you have a little one on the way will provide you with quite enough new experiences!

silambwill

Thanks everyone. Yep, I guess the employee option is best and I will try and negotiate towards the upper end of the bracket.

TELLIT01

The list at the top by @Grumpy_chap doesn't include the entitlement to 28 days paid leave as an employee either.  That alone is worth over £2k on the salary range listed.  It's a total no-brainer to me.  I'd want something in excess of £35k to even consider the self-employed route.

Grumpy_chap

TELLIT01 said:

The list at the top by @Grumpy_chap doesn't include the entitlement to 28 days paid leave as an employee either.  That alone is worth over £2k on the salary range listed.  

Possibly, possibly not.
The job was quoted at a salary of £26k to £28k - annual salary - so this figure will include the paid annual leave.

The "self employed consultant" was also offered on the basis of an annual rate, which is unusual, but I had assumed that the annual rate quoted would be on the basis of the same number of working days in the year.  It means that the daily (or hourly) rate needs to be proportionately higher.