Inside IR35? What are your options?
If you, like many others, have found to be within IR35, what are your options?
You could continue being paid as a limited company, but with employer and employee deductions. This means that you will be taxed in the same way as an employee, but crucially receive no employment benefits, as well as continuing to pay an accountant. Therefore, this option will more than likely be of detriment to you.
Your other option is to choose to engage as an employee and be paid PAYE through the recruitment agency directly or through an umbrella company.
Got questions? No problem - below we explore how this works.
The role of Umbrella companies is often misunderstood. There are many benefits for the contractor and recruitment agency/end-client. A FCSA accredited, compliant company such as Clipper Contracting will manage all the statutory employment, commercial and taxation risks associated with using temporary workers.
Umbrella is designed to benefit you, the worker – fact. Some key benefits are;
1. Statutory employment rights:- sick pay, maternity/paternity pay, pension and holiday pay all provided. Through Clipper, contractors can also choose to increase their pension contributions, which would be helpful if you have previously paid into a private pension.
2. Continuous employment:- despite working on multiple assignments, the worker has continuous employment history, important for mortgages or finance agreements. Earnings are consolidated one employer ensuring correct tax is paid despite performing many different assignments.
3. Ease of registration:- we offer over the phone registration with a one click electronic sign up, plus a dedicated account manager who will be your point of contact throughout your assignment.
4. Expenses:- we are able to facilitate the payment of rebillable expenses, if paid for by the end client.
5. Clipper Loyalty/Buddy Schemes:- We will reward contractors by waiving our weekly margin for workers to continue to use our services through an agency not previously used before, or recommending friends or colleagues who then go on to be paid through us.
6. Disaster recovery system:- not perhaps the most glamorous of points, however, does your Umbrella company have a sufficient back up system to ensure you can still get paid? We use virtual desktops to access our systems - this means in the event of a disaster, our staff can log-in from alternative locations or from home in order to continue our core business processes.
What, therefore, makes some hesitant about heading down the Umbrella route?
Myth 1 – Employer’s National Insurance
Many are concerned about the Employer’s National Insurance deduction, wrongly believing it is being deducted from the worker’s pay – a common misconception. This deduction is a company cost paid by the employer and should be factored into the contract sum (assignment rate) by the recruitment agency, i.e. it is in addition to the worker’s pay. As we are transparent in how we calculate the gross pay, we show the various company costs that are deducted (including the employer’s National Insurance) in the reconciliation statement that accompanies the payslip. If the worker was paid via the recruitment agency or end-client payroll, the employer’s National Insurance and other company costs will still have to be paid; they need to be factored in somewhere in the supply chain. Our friendly team will provide a detailed explanation and pay illustration upon registration and supporting documentation by email, to thoroughly explain the various deductions and the net pay a worker should expect.
Myth 2 – Umbrella companies are a ‘dodge’
Umbrella companies often get a bad name but just like any sector, the few that don’t operate transparently tarnish the rest. Umbrella companies provide legitimate, continuous employment to workers who are on numerous different assignments. Clipper Contracting are transparent in their dealings offering a clear employment contract, full statutory rights and clear illustrations on how pay is calculated. In addition, the Agency Workers Regulations (AWR) ensure that all Umbrella employees receive at least the same pay and rights as their full time, comparative equivalents. The contract sum received by Clipper Contracting would therefore more than likely be greater than the rate received by these equivalents.
Myth 3 – My net pay was higher with the other Umbrella company
Some companies term themselves as ‘Umbrella companies’ and whilst they pay temporary workers, the model they use is often different. If an Umbrella company is operating compliantly, there should be little difference in the net pay of the worker. Some other companies claiming to be ‘Umbrella companies’ often don’t employ their workers on over-arching employment contracts and those workers won’t have the same employment rights. In addition, there is no guarantee the correct tax and NI is being paid.
Myth 4 – There are no benefits working for an Umbrella company any longer
This is fundamentally incorrect. Not only do Clipper Contracting provide continuous employment and full statutory employment rights, some workers may also be able to submit travel and subsistence expenses.
If you require any further information, or feel there is anything else that you would like our assistance on, please call me on 07824 876896.