Contractors: IR35 & general discussion

[Olivera]

Gazzab said:

Let’s take a large bank or insurer…:typically they stopped doing business with any psc contractors. They didn’t want the hassle or risk involved with assessing each contractor to determine if they are inside or outside. So they stopped engaging psc contractors and just insisted that all contractors were via an umbrella without any form of ir35 determination. So they just avoided ir35 entirely. Without a determination then it’s not inside or outside, it’s just a bit of temp work via an umbrella

Yep, exactly this.

[Burrow01]

CorradoTDI said:

Hi all,

Currently working inside IR35 and will be well into the 60% tax trap this year...

I don't currently pay into a pension regularly (but have a couple of existing products from previous jobs)

Can anyone advise a product that I can set up and pay a lump into to reduce my gross income and how this is done please (i.e. do I need to do it before 5th April and then just declare on Self Assessment?)

You can set up a SIPP with any of the standard pension providers, and pay into that, either ask your umbrella or payment agency to pay in an Employer contribution. You might be a bit late to kick all of this off though, as its more complex than just paying in from your Ltd company.

Note that if you set it up this year, you can backdate payments from last year (although the limit is now £60k per year. and so you are probably OK with this per year) You can also pay the money into a cash account, and purchase funds later, no need to choose funds now.

[Blown2CV]

Mainly for the simple reason that those people were disguised employees on T&M contracts, as nearly all contractors were at that time because it was so much easier and there were benefits to both sides.

Many roles are simply impossible to turn into work which sits outside of IR35, and they were just turned into inside IR35 roles.

this is a change which brought about compliance with the law. If the change hadn't been made, they would not have been compliant with the law.

How does that mean the law doesn't apply then?

[Gazzab]

Blown2CV said:

Mainly for the simple reason that those people were disguised employees on T&M contracts, as nearly all contractors were at that time because it was so much easier and there were benefits to both sides.

Many roles are simply impossible to turn into work which sits outside of IR35, and they were just turned into inside IR35 roles.

this is a change which brought about compliance with the law. If the change hadn't been made, they would not have been compliant with the law.

How does that mean the law doesn't apply then?

I am not sure this is at all relevant but anyway, in my experience most contractors had contracts that were water tight - in my case they were reviewed and insured. So no disguised employment. They weren’t turned into inside ir35 contracts, no determinations were carried out. The fact that they no longer carry an ir35 risk or carry out any ir35 processes doesn’t mean they are inside ir35. They aren’t in or out, they are temps via umbrellas. I don’t know what specific law you feel applies to these temp arrangements. Ir35 doesn’t. It’s a moot point. Ir35 doesn’t apply. But you can call that inside if you like.

[Gazzab]

[Ranger 6]

Olivera said:

I'll be pedantic once more, but there are usually three categories of contractor:

1) Via PSC - IR35 does not apply, determined as Outside IR35
2) Via PSC - IR35 applies, determined as Inside IR35 (extremely rare, lots of obscure accounting rules apply)
3) Not via PSC - IR35 does not apply, normal payroll employee (Umbrella/Agency etc)

OK - so what am I missing? (Be gentle )

Where's
4) Not via PSC - Contractor assignment rate includes Employers NI, Apprenticeship levy, Day rate etc. Contractor has none of the employee payroll benefits - pension, sick pay, health care etc.

I am in an 'inside' contract - paid via umbrella. I do not have any benefits that a payroll employee does and my contract is limited to a maximum of 23 months due to HMRC legislation.

[Olivera]

Ranger 6 said:

Olivera said:

I'll be pedantic once more, but there are usually three categories of contractor:

1) Via PSC - IR35 does not apply, determined as Outside IR35
2) Via PSC - IR35 applies, determined as Inside IR35 (extremely rare, lots of obscure accounting rules apply)
3) Not via PSC - IR35 does not apply, normal payroll employee (Umbrella/Agency etc)

OK - so what am I missing? (Be gentle )

Where's
4) Not via PSC - Contractor assignment rate includes Employers NI, Apprenticeship levy, Day rate etc. Contractor has none of the employee payroll benefits - pension, sick pay, health care etc.

I am in an 'inside' contract - paid via umbrella. I do not have any benefits that a payroll employee does and my contract is limited to a maximum of 23 months due to HMRC legislation.

That's category 3.

'Contractor assignment rate includes Employers NI, Apprenticeship levy, Day rate etc' - these are all details agreed between the end client and the Umbrella.

'Contractor has none of the employee payroll benefits - pension, sick pay, health care etc' - yes you do, you'll have at least the statutory minimum that must be given to employees. You'll accrue holiday pay and mandatory pension contributions, and be eligible for sick pay, the same as any other employee. See your Umbrella for more info.

[Blown2CV]

Gazzab said:

Blown2CV said:

Mainly for the simple reason that those people were disguised employees on T&M contracts, as nearly all contractors were at that time because it was so much easier and there were benefits to both sides.

Many roles are simply impossible to turn into work which sits outside of IR35, and they were just turned into inside IR35 roles.

this is a change which brought about compliance with the law. If the change hadn't been made, they would not have been compliant with the law.

How does that mean the law doesn't apply then?

I am not sure this is at all relevant but anyway, in my experience most contractors had contracts that were water tight - in my case they were reviewed and insured. So no disguised employment. They weren’t turned into inside ir35 contracts, no determinations were carried out. The fact that they no longer carry an ir35 risk or carry out any ir35 processes doesn’t mean they are inside ir35. They aren’t in or out, they are temps via umbrellas. I don’t know what specific law you feel applies to these temp arrangements. Ir35 doesn’t. It’s a moot point. Ir35 doesn’t apply. But you can call that inside if you like.

...contracts that were watertight until the rules changed. This is partly why banks said they didn't want to deal with PSCs anymore, as blanket determinations were outlawed, so this was just a legal proxy. There is no IR35 risk if you are inside IR35... that's the whole point. It's basically throwing your hands up and saying yes this I am a temporary worker and I will carry on doing temporary work under an umbrella. You can only be a temporary worker under IR35 in this way, because this is what the law requires in order to be transparent and fulfil legal obligations. If you are a service provider who meets all the criteria then you can evidence that the IR35 law does not apply to you... that's why it's called 'outside'.

Bored of this now, it's all really obvious stuff I am not sure why it's up for debate.

[Gazzab]

Blown2CV said:

Gazzab said:

Blown2CV said:

Mainly for the simple reason that those people were disguised employees on T&M contracts, as nearly all contractors were at that time because it was so much easier and there were benefits to both sides.

Many roles are simply impossible to turn into work which sits outside of IR35, and they were just turned into inside IR35 roles.

this is a change which brought about compliance with the law. If the change hadn't been made, they would not have been compliant with the law.

How does that mean the law doesn't apply then?

I am not sure this is at all relevant but anyway, in my experience most contractors had contracts that were water tight - in my case they were reviewed and insured. So no disguised employment. They weren’t turned into inside ir35 contracts, no determinations were carried out. The fact that they no longer carry an ir35 risk or carry out any ir35 processes doesn’t mean they are inside ir35. They aren’t in or out, they are temps via umbrellas. I don’t know what specific law you feel applies to these temp arrangements. Ir35 doesn’t. It’s a moot point. Ir35 doesn’t apply. But you can call that inside if you like.

...contracts that were watertight until the rules changed. This is partly why banks said they didn't want to deal with PSCs anymore, as blanket determinations were outlawed, so this was just a legal proxy. There is no IR35 risk if you are inside IR35... that's the whole point. It's basically throwing your hands up and saying yes this I am a temporary worker and I will carry on doing temporary work under an umbrella. You can only be a temporary worker under IR35 in this way, because this is what the law requires in order to be transparent and fulfil legal obligations. If you are a service provider who meets all the criteria then you can evidence that the IR35 law does not apply to you... that's why it's called 'outside'.

Bored of this now, it's all really obvious stuff I am not sure why it's up for debate.

Did you read my post above that showed the number 1 expert regarding ir35 stating the same thing ie that these faux inside contracts aren’t inside at all. They are just payroll temp engagements. The law of ir35 simply isn’t relevant to these engagements. Yes it means the clients can’t get caught doing it wrong but they haven’t executed any processes that mean the engagements are inside ir35. The end result might be the same for the ‘contractor’ but in a court of law it cannot be called inside ir35.

[wombleh]

I suspect its one of two things:
- habit from advertising roles as “outside ir35” before.
- because it sounds more attractive than “temp”, and they’re trying to sound different to the kind of stuff advertised in high street temping agencies, mainly for the benefit of clients.

Was anyone actually expecting agencies to be honest?

[Pit Pony]

CorradoTDI said:

Hi all,

Currently working inside IR35 and will be well into the 60% tax trap this year...

I don't currently pay into a pension regularly (but have a couple of existing products from previous jobs)

Can anyone advise a product that I can set up and pay a lump into to reduce my gross income and how this is done please (i.e. do I need to do it before 5th April and then just declare on Self Assessment?)

This is what my limited company were paying into. Usually a lump sum before the end of the financial year.

https://www.ajbell.co.uk/sipp

Other providers are available.

I've got a total unbalanced investment profile, because it's a smaller part of the pensions I have, and i treat it as my high risk part the rest I let Aviva manage it.

The issue for you is you haven't salary sacrificed, so you won't save much NI (employees or employers) if you do a lump sum now before the end of the year.
You pay out of taxed earnings and claim.back the tax in your next self assessment. Or do they add it to your pension? Don't let that stop you though for next year. Then In April, set it up to salary sacrifice monthly through your umbrellor and save the NI.

Im about to put 2800 into my wife's pension. She's not earning although has some investment income. I think the HMRC will then make it up to £3600. Never done it, as before she was employed by my (now dead) limited company and it was all done as a company contribution.

[Guvernator]

I tried to setup salary sacrifice through my umbrella but just couldn't get it to work.

The reason being that my umbrella couldn't setup a direct debit to my pension provider because by monthly earnings fluctuate so the only way they can pay is via a variable BACS transfer every month. Pension providers don't like BACS transfers due to financial regulations, they need to treat it as a one off payment (a direct debit doesn't have this problem) which means I, the umbrella company and the pension provider have to fill in lots of paperwork every single month to make the BACS payment which is a massive ball-ache.

Now I've read that lots of people have managed to setup salary sacrifice through an umbrella so how do they get around this problem? Is it just my umbrella company being difficult in not setting up a DD? I can't imagine it's a problem with my Pension provider as surely all pension providers are covered by the same regulations. I'm not filling in a 10 page financial document with sections that also need to be filled in by the umbrella co every month, just to pay into my pension.

[Piersman2]

I've been insideIR35 for the last couple of years,still working through my ltd company but basically it's just a payment processing vehicle for now.

Anyways,when I was working outside IR35 I would pay my SIPP from a direct transfer from the built up company coffers, the full allowance to maximise reduction of corporation tax.

Inside IR35 where I am being paid post-PAYE deductions, I am paying in 80% of the max allowance personally into the SIPP, the SIPP company then claim the missing 20% from the tax man and add it in, and I can then offset another 20% against my personal tax bill.

So last year I personally paid 32k into my SIPP, it was topped up to 40k in the SIPP, and I ended up getting an 11K refund of tax due to the other 8K allowance and some overpayments of tax taken before my PAYE has been passed onto me all year.

This year I've paid in 48k personally from my inside IR35 payments, I'm waiting on the 12k HMRC top up to 60k, and will have another 12k to offset against my personal tax calcs for a juicy tax refund about May time once the accountants have done the numbers for me.

[Blown2CV]

Guvernator said:

I tried to setup salary sacrifice through my umbrella but just couldn't get it to work.

The reason being that my umbrella couldn't setup a direct debit to my pension provider because by monthly earnings fluctuate so the only way they can pay is via a variable BACS transfer every month. Pension providers don't like BACS transfers due to financial regulations, they need to treat it as a one off payment (a direct debit doesn't have this problem) which means I, the umbrella company and the pension provider have to fill in lots of paperwork every single month to make the BACS payment which is a massive ball-ache.

Now I've read that lots of people have managed to setup salary sacrifice through an umbrella so how do they get around this problem? Is it just my umbrella company being difficult in not setting up a DD? I can't imagine it's a problem with my Pension provider as surely all pension providers are covered by the same regulations. I'm not filling in a 10 page financial document with sections that also need to be filled in by the umbrella co every month, just to pay into my pension.

i've done it with 2 different umbrellas now. I think if they know how to do it, it's easy but if they don't then you might be pissing into the wind a bit. Definitely in the selection criteria for umbrellas IMHO.

[mikef]

Guvernator said:

Now I've read that lots of people have managed to setup salary sacrifice through an umbrella so how do they get around this problem? Is it just my umbrella company being difficult in not setting up a DD? I can't imagine it's a problem with my Pension provider as surely all pension providers are covered by the same regulations. I'm not filling in a 10 page financial document with sections that also need to be filled in by the umbrella co every month, just to pay into my pension.

Paystream Max were able to do this (set %age, different amount each month) to a number of pension providers, including three that I was already using

It was one of the reasons that I didn't go with other umbrellas that came highly recommended - in some case their choice of pension providers was "Nest or SJP", which was a huge red ffag

[wombleh]

My last brolly (NASA) could do it as % or fixed amount and let you email them to vary it on a monthly basis.

[WhiskyDisco]

Pit Pony said:

This is what my limited company were paying into. Usually a lump sum before the end of the financial year.

https://www.ajbell.co.uk/sipp

Other providers are available.

I've got a total unbalanced investment profile, because it's a smaller part of the pensions I have, and i treat it as my high risk part the rest I let Aviva manage it.

The issue for you is you haven't salary sacrificed, so you won't save much NI (employees or employers) if you do a lump sum now before the end of the year.
You pay out of taxed earnings and claim.back the tax in your next self assessment. Or do they add it to your pension? Don't let that stop you though for next year. Then In April, set it up to salary sacrifice monthly through your umbrellor and save the NI.

Im about to put 2800 into my wife's pension. She's not earning although has some investment income. I think the HMRC will then make it up to £3600. Never done it, as before she was employed by my (now dead) limited company and it was all done as a company contribution.

I did this for years - paid £240 in for her, and this turned into £300.

It made sense when I was earning minimum wage but less so when I'm trying to shelter from high tax rates.

[Guvernator]

mikef said:

Paystream Max were able to do this (set %age, different amount each month) to a number of pension providers, including three that I was already using

It was one of the reasons that I didn't go with other umbrellas that came highly recommended - in some case their choice of pension providers was "Nest or SJP", which was a huge red ffag

I'm with paystream but not on the max setup which I believe you pay extra for. Might give this a go. My pension is with Quilter\Old Mutual who are on their "approved" list too but I'm still not sure if this is paystream making it difficult or the pension provider so going to max may mean I pay the umbrella more money and it still doesn't work.

Shouldn't be this difficult.

[Ranger 6]

Olivera said:

Ranger 6 said:

Olivera said:

I'll be pedantic once more, but there are usually three categories of contractor:

1) Via PSC - IR35 does not apply, determined as Outside IR35
2) Via PSC - IR35 applies, determined as Inside IR35 (extremely rare, lots of obscure accounting rules apply)
3) Not via PSC - IR35 does not apply, normal payroll employee (Umbrella/Agency etc)

OK - so what am I missing? (Be gentle )

Where's
4) Not via PSC - Contractor assignment rate includes Employers NI, Apprenticeship levy, Day rate etc. Contractor has none of the employee payroll benefits - pension, sick pay, health care etc.

I am in an 'inside' contract - paid via umbrella. I do not have any benefits that a payroll employee does and my contract is limited to a maximum of 23 months due to HMRC legislation.

That's category 3.

'Contractor assignment rate includes Employers NI, Apprenticeship levy, Day rate etc' - these are all details agreed between the end client and the Umbrella.

'Contractor has none of the employee payroll benefits - pension, sick pay, health care etc' - yes you do, you'll have at least the statutory minimum that must be given to employees. You'll accrue holiday pay and mandatory pension contributions, and be eligible for sick pay, the same as any other employee. See your Umbrella for more info.

You're not the same as any other employee though, as the pension and holiday pay accruals are funded from the assignment rate - not from the employer (umbrella). And sick pay is 'only' SSP after self certification - you don't get paid while you're going through the self certification period. There is a whole number of detail differences which separate a contractor from an employee - Company funded social activities, personal development, performance reviews, etc etc.

So a contractor still has to pay for all their own 'benefits' from the money received from the client company, however, instead of being able to manage all that and make their own choices through a Ltd company the management is done by someone else who then just gives them the remains.

[Blown2CV]

Guvernator said:

mikef said:

Paystream Max were able to do this (set %age, different amount each month) to a number of pension providers, including three that I was already using

It was one of the reasons that I didn't go with other umbrellas that came highly recommended - in some case their choice of pension providers was "Nest or SJP", which was a huge red ffag

I'm with paystream but not on the max setup which I believe you pay extra for. Might give this a go. My pension is with Quilter\Old Mutual who are on their "approved" list too but I'm still not sure if this is paystream making it difficult or the pension provider so going to max may mean I pay the umbrella more money and it still doesn't work.

Shouldn't be this difficult.

you shouldn't have to pay more to do salary sacrifice. It's part of the basic package with parasol and also foretwo who i used previously.