CIS subcontractor or PAYE

AskAsk

My friend started work for an agency as a CIS laborer 3 weeks ago and has been paid as an employee on PAYE through an umbrella company.  Problem is that the umbrella company is deducting employer NI from his pay as well as employee NI.  The gross pay is £15 per hour but after the umbrella company's deductions, it is £13 an hour.

He has challenged them but not getting very far forward.  He asked his colleagues and they said that they are paid as self employed so they don't have this employer NI taken from their pay.

My friend has therefore asked me to help him register as a CIS subcontractor so he can get paid like his colleagues.

Before I do this, can anyone think of a disadvantage to being paid as a subcontractor as opposed to PAYE?

He is a basic rate payer but he already does self assessment because he had rental income so if he switches to CIS subtractor, he can also do the self employment submission on his next tax return.  The PAYE is 13.7% income tax deducted, which I think is low because it takes into account the personal allowance, which the CIS subcontractor won't do as for a registered subcontractor, it will be flat 20%, but I assume that he will get a refund when he does his self assessment?

Marcon

AskAsk said:

My friend started work as a CIS laborer 3 weeks ago and has been paid as an employee on PAYE through an umbrella company.  Problem is that the umbrella company is deducting employer NI from his pay as well as employee NI.

He has challenged them but not getting very far forward.  He asked his colleagues and they said that they are paid as self employed so they don't have this employer NI taken from their pay.

My friend has therefore asked me to help him register as a CIS subcontractor so he can get paid like his colleagues.

Before I do this, can anyone think of a disadvantage to being paid as a subcontractor as opposed to PAYE?

He is a basic rate payer but he already does self assessment because he had rental income so if he switches to CIS subtractor, he can also do the self employment submission on his next tax return.  The PAYE is 13.7% income tax deducted, which I think is low because it takes into account the personal allowance, which the CIS subcontractor won't do as for a registered subcontractor, it will be flat 20%, but I assume that he will get a refund when he does his self assessment?

If you google on 'CIS v PAYE' there are plenty of sites with up to date information on the pros and cons - but might it not be better to suggest to your friend they seek help from someone who already understands the situation/can give an informed opinion, especially with other income streams to take into account?

Might also be useful: https://forums.moneysavingexpert.com/discussion/6585721/cis-subcontracting#latest

Grumpy_chap

Is the friend's role deemed inside-IR35?
The way the Umbrella Company are making payments (deducting employer plus employee NI) is how Umbrella Company employment works.

Lomast

If you use an umbrella company then they are the employer, the rate you agreed with the contractor and umbrella will be made up of your wage, employer and employee NI and the umbrella fee. 

AskAsk

Lomast said:

If you use an umbrella company then they are the employer, the rate you agreed with the contractor and umbrella will be made up of your wage, employer and employee NI and the umbrella fee. 

that makes sense as his hourly rate is £15 per hour, but from that is deducted employee NI and employer NI as well as the company's commision.

the biggest begrudge is the employer NI, which is quite significant.  he didn't choose the umbrella company, they are used by the agency to make payments to him so if he wants to avoid paying the employer NI from his £15 per hour, he has to change to subcontractor status.

it is a bit confusing as his payslip states PAYE but it also state method of payment is CIS.

Marcon

AskAsk said:

Lomast said:

If you use an umbrella company then they are the employer, the rate you agreed with the contractor and umbrella will be made up of your wage, employer and employee NI and the umbrella fee. 

that makes sense as his hourly rate is £15 per hour, but from that is deducted employee NI and employer NI as well as the company's commision.

the biggest begrudge is the employer NI, which is quite significant.  he didn't choose the umbrella company, they are used by the agency to make payments to him so if he wants to avoid paying the employer NI from his £15 per hour, he has to change to subcontractor status.

it is a bit confusing as his payslip states PAYE but it also state method of payment is CIS.

As already suggested, google is your friend here - eg https://www.litrg.org.uk/working/self-employment/construction-industry-scheme-cis#:~:text=The%20Construction%20Industry%20Scheme%20(CIS)%20is%20a%20HMRC%20scheme%20which,as%20a%20self%2Demployed%20individual. gives an excellent clear overview.

AskAsk

Marcon said:

AskAsk said:

Lomast said:

If you use an umbrella company then they are the employer, the rate you agreed with the contractor and umbrella will be made up of your wage, employer and employee NI and the umbrella fee. 

that makes sense as his hourly rate is £15 per hour, but from that is deducted employee NI and employer NI as well as the company's commision.

the biggest begrudge is the employer NI, which is quite significant.  he didn't choose the umbrella company, they are used by the agency to make payments to him so if he wants to avoid paying the employer NI from his £15 per hour, he has to change to subcontractor status.

it is a bit confusing as his payslip states PAYE but it also state method of payment is CIS.

As already suggested, google is your friend here - eg https://www.litrg.org.uk/working/self-employment/construction-industry-scheme-cis#:~:text=The%20Construction%20Industry%20Scheme%20(CIS)%20is%20a%20HMRC%20scheme%20which,as%20a%20self%2Demployed%20individual. gives an excellent clear overview.

i have read through those articles before.  i am confused about his payslip stating method of payment is CIS but there is PAYE tax deductions.  i am not sure why there are different methods on there.

i did explain to him that if he switches to sub contractor, the income tax would increase to 20% as the deduction is currently only 13.7% but that we can claim it back in his self assessment and he would also be able to claim expenses.  i am familiar with self assessment for self employment but not in the CIS scheme.

Grumpy_chap

AskAsk said:

that makes sense as his hourly rate is £15 per hour, but from that is deducted employee NI and employer NI as well as the company's commision.

It seems as though your friend might well be better looking for alternative employment.  You have not said what type of role he works in, but as CIS is mentioned, I assumed a "trade" in which case the hourly rate of £15 seems to low - after deducting the Umbrella Company fee plus Employer's NI, the individual will be on barely NMW.  A Labourer would plausibly be on more.  The end-client seems to be taking advantage here.
In the meantime, the individual might want to use one of the online calculators to assess whether they are eligible for any benefits.

AskAsk

Grumpy_chap said:

AskAsk said:

that makes sense as his hourly rate is £15 per hour, but from that is deducted employee NI and employer NI as well as the company's commision.

It seems as though your friend might well be better looking for alternative employment.  You have not said what type of role he works in, but as CIS is mentioned, I assumed a "trade" in which case the hourly rate of £15 seems to low - after deducting the Umbrella Company fee plus Employer's NI, the individual will be on barely NMW.  A Labourer would plausibly be on more.  The end-client seems to be taking advantage here.
In the meantime, the individual might want to use one of the online calculators to assess whether they are eligible for any benefits.

he got the work through an agency as a laborer.  they have told him this particular job pays £15 per hour but the payslip says otherwise as they have deducted the employer NI and their commission, so the pay is about £13 an hour.  Just a little more than minimum wage.

He is currently working as a laborer (non skill) for a buidling company who are building large houses in Surrey.  I do agree with you that the pay is poor for construction work in the south east so I will tell him that I do not think it is worthwhile messing around with changing to subcontractor status and just look for another job as he is clearly being ripped off here.

When I hear of people working through an umbrella company, they are often highly paid professionals so even with the deductions, they still end up with a large pay packet, but not when you are talking about £13 an hour.

DullGreyGuy

AskAsk said:

Grumpy_chap said:

AskAsk said:

that makes sense as his hourly rate is £15 per hour, but from that is deducted employee NI and employer NI as well as the company's commision.

It seems as though your friend might well be better looking for alternative employment.  You have not said what type of role he works in, but as CIS is mentioned, I assumed a "trade" in which case the hourly rate of £15 seems to low - after deducting the Umbrella Company fee plus Employer's NI, the individual will be on barely NMW.  A Labourer would plausibly be on more.  The end-client seems to be taking advantage here.
In the meantime, the individual might want to use one of the online calculators to assess whether they are eligible for any benefits.

he got the work through an agency as a laborer.  they have told him this particular job pays £15 per hour but the payslip says otherwise as they have deducted the employer NI and their commission, so the pay is about £13 an hour.  Just a little more than minimum wage.

He is currently working as a laborer (non skill) for a buidling company who are building large houses in Surrey.  I do agree with you that the pay is poor for construction work in the south east so I will tell him that I do not think it is worthwhile messing around with changing to subcontractor status and just look for another job as he is clearly being ripped off here.

When I hear of people working through an umbrella company, they are often highly paid professionals so even with the deductions, they still end up with a large pay packet, but not when you are talking about £13 an hour.

Sounds like he has decided to go for an employee umbrella rather than CIS self employed umbrella hence why the employer taxes are being deducted. 

In the first instance have a look at the umbrella and see if they offer a CIS solution, its a little different to the employer umbrella world as its sold to the contractor rather than the sub-contractor.

Have they done the necessary registrations for self employment and CIS?

Grumpy_chap

AskAsk said:

he got the work through an agency as a laborer.  they have told him this particular job pays £15 per hour but the payslip says otherwise as they have deducted the employer NI and their commission, so the pay is about £13 an hour.  Just a little more than minimum wage.

The real frightener here is that his actual pay might be below NMW, depending on how provision is being made (or not made) for covering holiday entitlement and other absences.