Umbrella vs invoicing for short consulting trial

tag_fur_long

Hi all, new here. Hope I've posted in the right place. Looking for a quick sense check.

I am about 10 years into my career and about to try consulting for a short trial period of around 3 months with a couple of startup clients. The work is hands on delivery, day rate based, around 3 to 4 days a week, and I am assuming it will be inside IR35.

This tax year is already a bit messy for me due to PAYE work earlier in the year, a bonus, parental leave and redundancy, so simplicity is a big factor. I am trying to decide whether to invoice directly as a sole trader or go through an umbrella company and submit timesheets.

This is only meant to be a 3 month trial to see if this way of working suits me, although it might extend beyond that if it works out. I'm not looking to optimise tax, just avoid unnecessary admin or headaches for a short test period.

Is there anything obvious I am missing that should push me one way or the other? Any common pitfalls with umbrellas for this kind of setup?

Thanks in advance.

monkey-fingers

tag_fur_long said:

Hi all, new here. Hope I've posted in the right place. Looking for a quick sense check.

I am about 10 years into my career and about to try consulting for a short trial period of around 3 months with a couple of startup clients. The work is hands on delivery, day rate based, around 3 to 4 days a week, and I am assuming it will be inside IR35.

This tax year is already a bit messy for me due to PAYE work earlier in the year, a bonus, parental leave and redundancy, so simplicity is a big factor. I am trying to decide whether to invoice directly as a sole trader or go through an umbrella company and submit timesheets.

This is only meant to be a 3 month trial to see if this way of working suits me, although it might extend beyond that if it works out. I'm not looking to optimise tax, just avoid unnecessary admin or headaches for a short test period.

Is there anything obvious I am missing that should push me one way or the other? Any common pitfalls with umbrellas for this kind of setup?

Thanks in advance.

As an aside, if you have more than 1 client, I'd assume it's outside IR35.
Inside IR35 normally means you're doing the work of an employee and acting like an employee. Delivery based, with milestones, is a consultant type approach which means you're working for yourself.

Inside IR35 roles are generally ones where a company doesn't want to take risk of permanence, because they only need the job doing for 6-12 months.

Here's the checker
https://www.gov.uk/guidance/check-employment-status-for-tax

Mine says absolutely I'm outside IR35 because I have the right to substitute (my contract says this)

tag_fur_long

@monkey-fingers, thanks v much for your reply. While it's nuanced, I believe (and the checker comes to the same conclusion) that I'm inside IR35 with my current engagements. 

monkey-fingers

tag_fur_long said:

@monkey-fingers, thanks v much for your reply. While it's nuanced, I believe (and the checker comes to the same conclusion) that I'm inside IR35 with my current engagements. 

I still find it intriguing that you can work for multiple clients, but be inside.

tag_fur_long

@monkey-fingers from my reading, it looks like each engagement is assessed separately. One illustrative bit of advice that I'm leaning on but can't link to since I'm new is at contractoruk: 'Can I do two inside IR35 contracts at the same time'? Expert’s Answer: The short answer is simply “yes”-- you can absolutely work for multiple clients concurrently. Pick n’ mix It is entirely possible to have two outside IR35 engagements, two inside IR35 engagements, two employments or any combination of the above -- each engagement is determined individually on its own merits. From a tax perspective, if PAYE is applied to both engagements (employed via umbrella and inside IR35 via PSC), then it will depend on the income received from these engagements. I presume you don't have a view on umbrellas then, if you're outside therefore invoicing? Ta

monkey-fingers

I'm frantically anti-umbrella personally. It's very expensive and a huge tax burden.

I've nothing against paying tax, but having to pay both employers, employees and apprentice tax is woefully unfair to me. As well as having difficulties claiming genuine expenses. And there's the addition of Umbrella company fees.

It's a lose-lose situation. You're PAYE, paying extra tax and taking all the risk.

As you said in your OP, it's messy too doing it halfway through a tax year.

One good thing is that shortly, it'll be down to the agency to ensure that HMRC are paid their debt rather than the individual or umbrella. The upside is that many agencies are sorting the PAYE element themselves, cutting out the umbrella middle-man and therefore not charging a fee.

MeteredOut

monkey-fingers said:

tag_fur_long said:

@monkey-fingers, thanks v much for your reply. While it's nuanced, I believe (and the checker comes to the same conclusion) that I'm inside IR35 with my current engagements. 

I still find it intriguing that you can work for multiple clients, but be inside.

No different to having multiple employments.

And having a contract that states you have a right to substitute does not automatically make you outside. It is the real world working practices that dictate that. So, for example, if I had a contract that said i could provide a substitute, but my client refused that substitute (or admitted to HMRC as part of an investigation that they might refuse a substitute without first interviewing them), then in the eyes of HMRC, that substitute clause would not hold true. The client may be in breach of contract, but HMRC would not care about that.

OP, the first questions you should ask yourself re. Sole Trader v Umbrella (or even Ltd) are

- Will the client even allow a Sole Trader engagement? Many do not. It often depends on the size of the client
- What is the risk of going Sole Trader if you do something wrong versus being Umbrella employed or Ltd company? You could be sued personally, putting your own assets at risk.

Marcon

monkey-fingers said:

tag_fur_long said:

@monkey-fingers, thanks v much for your reply. While it's nuanced, I believe (and the checker comes to the same conclusion) that I'm inside IR35 with my current engagements. 

I still find it intriguing that you can work for multiple clients, but be inside.

Because that's not how the test is applied - a lot of people wrongly assume that if you have more than one client it someone changes the status of what you're doing. Same thing with self employment; just having more than one 'client' doesn't of itself make you self employed.

OP, you need to check what each client will accept. Invoicing from you on a personal basis may well not work for them (because of the risk that HMRC won't regard you as self employed) - you'd have to invoice via your own limited company.

monkey-fingers

Good point - both above about being self-employed/sole trader. Most agencies wouldn't touch one.

tag_fur_long

Thanks all, this has been super helpful. Any further insights welcome!

MeteredOut

tag_fur_long said:

Thanks all, this has been super helpful. Any further insights welcome!

For a 3 month engagement (assuming sole trader is ruled out), then Umbrella is the way to go. But, as referred to above, make sure you understand the fees involved (ie. you'll pay both employee and employer NI) so make sure you understand what your net will be based off a your day rate - there's plenty umbrella calculators out there.

But if you can afford it, I'd recommend using Salary Sacrifice as much as you can to put money into a pension and reduce taxes/NI. Some Umbrella Companies will only work with some pension providers, and often those with higher fees (eg, NEST), so take that into account when choosing your UC.