Can you afford to go perm or inside IR35?

[eek]

What, precisely?

The idea that it is actually illegal for an agency to advertise a rate including employer deductions - you can...

Interestingly the only employment tribunal that has been asked to comment on deductions of employer NI didn't have a problem with the deductions just with the very unclear way they had been displayed...

[jamesbrown]

The idea that it is actually illegal for an agency to advertise a rate including employer deductions - you can...

Interestingly the only employment tribunal that has been asked to comment on deductions of employer NI didn't have a problem with the deductions just with the very unclear way they had been displayed...

Where did I say that?

[jamesbrown]

The problem arises when deductions are made from the pay actually owing to an employee (employer costs cannot be deducted from that amount). This isn't about misleading advertisements or salaries that don't reflect the full costs of employment, it's about being very clear on the pay actually owing to an employee versus the partly/fully loaded amounts that are not.

[helger]

However it's essential that we ensure agencies do offer these types of rates as salary sacrifice into pensions is essential going forward as it's one of the few benefits we will have remaining.

How? Agent has ZERO motivation to do so. They just keep all employer NIC saving in terms of pension contribution as their profit. Why on earth would they like to hand their profit to the worker?

[eek]

How? Agent has ZERO motivation to do so. They just keep all employer NIC saving in terms of pension contribution as their profit. Why on earth would they like to hand their profit to the worker?

Agents have a large incentive to use umbrellas for smaller firms it's less hassle and allows them to advertise a rate at £500 rather than £380 a day.

And as you've discovered payment via an umbrella provides more flexibility if you wish to put a lot into the pension as the employer NI is yours to add rather than the agencies to derive additional profit from.

[eek]

Where did I say that?

When you answered LM's question
You shouldn't be paying the employers NI from your day rate on an inside gig.

Not directly, no, because that would be illegal. But indirectly, yes, and in most cases it will be mechanically so because the fee payer isn’t receiving any more money. Of course, the same is ultimately true for employment too. All business taxes reduce wages.

As there is nothing illegal about it.

[jamesbrown]

When you answered LM's question
You shouldn't be paying the employers NI from your day rate on an inside gig.



As there is nothing illegal about it.

So why, when I asked you "what precisely", did you reply with this?

The idea that it is actually illegal for an agency to advertise a rate including employer deductions - you can...

My point has absolutely nothing to do with advertising (my point is not about misrepresentation, although that is potentially unlawful too).

To your new point. The SSCBA 1992 indicates that it is unlawful to deduct employment taxes from earnings due to an employed earner.

Social Security Contributions and Benefits Act 1992

My emphasis.

Method of paying Class 1 contributions
3(1)Where earnings are paid to an employed earner and in respect of that payment liability arises for primary and secondary Class 1 contributions, the secondary contributor shall (except in prescribed circumstances), as well as being liable for his own secondary contribution, be liable in the first instance to pay also the earner’s primary contribution, on behalf of and to the exclusion of the earner; and for the purposes of this Act and the Administration Act contributions paid by the secondary contributor on behalf of the earner shall be taken to be contributions paid by the earner.
(2)Notwithstanding any contract to the contrary, no secondary contributor shall be entitled—
(a)to make, from earnings paid by him, any deduction in respect of his own or any other person’s secondary Class 1 contributions, or
(b)otherwise to recover such contributions from any earner to whom he pays earnings.

The ERA 1996 also contains safeguards against unlawful deductions.

This is also reflected in HMRC guidance.

Off-payroll working in the public sector: reform of the intermediaries legislation - information for agents - GOV.UK

7. Secondary Class 1 (employers’) NICs
Because the fee payer has a liability to pay secondary Class 1 NICs, they are likely to wish to renegotiate the fee with the intermediary to reduce the rate for the job. They cannot lawfully deduct the secondary NICs from a fee that has been agreed, but could, depending on the contractual terms, negotiate a lower fee.

The fee payer cannot deduct employment taxes from an agreed fee, but they can certainly renegotiate a reduced fee to reflect employment costs. That is the point I am making and, if you disagree with this, please provide the evidence necessary to support your claim.

[eek]

So why, when I asked you "what precisely", did you reply with this?



My point has absolutely nothing to do with advertising (my point is not about misrepresentation, although that is potentially unlawful too).

To your new point. The SSCBA 1992 indicates that it is unlawful to deduct employment taxes from earnings due to an employed earner.

Social Security Contributions and Benefits Act 1992

My emphasis.



The ERA 1996 also contains safeguards against unlawful deductions.

This is also reflected in HMRC guidance.

Off-payroll working in the public sector: reform of the intermediaries legislation - information for agents - GOV.UK



The fee payer cannot deduct employment taxes from an agreed fee, but they can certainly renegotiate a reduced fee to reflect employment costs. That is the point I am making and, if you disagree with this, please provide the evidence necessary to support your claim.

My actual point was based on https://assets.publishing.service.go...nd_Reasons.pdf

for which this bit is very relevant


34. The respondent has not helped the situation by the convoluted and confusing documentation and the Byzantine method of calculating pay and deductions and by the layout of the payslip. However, I do accept Ms Chan’s analysis of how the wages were ultimately calculated and I find that there have been no unlawful deductions. That said: I can sympathise with the claimant’s confusion on this matter.

And this case revolved around illegal deduction of employer NI and holiday pay both of which are the biggest deductions you can make.

Equally the fact that you ignore advertising highlights the issue - it's the most likely issue if say you look at a law firm trying to generate class actions against the umbrella industry.

Oh and to make deductions legal all you need to do is throw another key information document at the worker and your job is done - do it late on Friday and the option for the worker is accept the deduction or a few weeks without money while they try to find another contract.

Finally if you want to see a example of the issues we are going to see look at the 3 posts on https://www.contractoruk.com/forums/...sesment-2.html including QDOS's response and my reply that they still haven't responded to.

[jamesbrown]

My actual point was based on https://assets.publishing.service.go...nd_Reasons.pdf

for which this bit is very relevant


34. The respondent has not helped the situation by the convoluted and confusing documentation and the Byzantine method of calculating pay and deductions and by the layout of the payslip. However, I do accept Ms Chan’s analysis of how the wages were ultimately calculated and I find that there have been no unlawful deductions. That said: I can sympathise with the claimant’s confusion on this matter.

And this case revolved around illegal deduction of employer NI and holiday pay both of which are the biggest deductions you can make.

Your actual point still escapes me.

From my POV, this has been a very odd exchange. You started out with this:

are getting fundamental items wrong

And continued with this:

The idea that it is actually illegal for an agency to advertise a rate including employer deductions - you can..

And now you're citing a particular case from an ET as evidence of what, precisely?

To me "fundamental" means some sort of principle (that has been misconstrued). I don't recall making any assertions about the relative ease or difficulty of applying (un)lawful deductions or citing any particular ET case in support of that. The principles of unlawful deduction (of employment costs from an employee's wages) originate in SSCBA 1992 and ERA 1996. As to whether an unlawful deduction has occurred in any particular case is, quite obviously, about the facts of a particular case, and that has nothing to do with principle.

Equally the fact that you ignore advertising highlights the issue - it's the most likely issue if say you look at a law firm trying to generate class actions against the umbrella industry.

I'm not "ignoring" advertising. It simply wasn't the point I made. My point was about the distinction between a lawful deduction, which is not made from the fee owing to an employee, and an unlawful one, which is made from the fee owing to an employee. I believe that was the point that LM was making too, but I could be wrong, i.e., that employment costs cannot be unlawfully deducted. It seems to me that an employer can perfectly easily avoid an unlawful deduction by describing, upfront, the fees owed to an employee so that the employee is clear that employment costs have not been deducted from this amount. Contract fees should be agreed at the start of a project. To me, deductions of ErNI from a contract that spans 6 April 2021 seem much more open to challenge as unlawful, but it still depends on the facts.

Oh and to make deductions legal all you need to do is throw another key information document at the worker and your job is done - do it late on Friday and the option for the worker is accept the deduction or a few weeks without money while they try to find another contract.

Well, sort of. The key information document actually needs to be correct. But, sure, a key information document is the mechanism by which agency workers are required to be informed about deductions from their fees, post April 2020. If this is for a new contract, it seems perfectly straightforward for a fee payer to avoid unlawful deductions. If it's for an existing contract for which new deductions are being introduced that relate to employment costs, then that seems more open to challenge.

Finally if you want to see a example of the issues we are going to see look at the 3 posts on https://www.contractoruk.com/forums/...sesment-2.html including QDOS's response and my reply that they still haven't responded to.

That's all very interesting, but I don't see how it relates to anything "fundamental" that I have stated incorrectly. At this point, I think we can all agree that many issues will arise leading up to (and after) April 2021. The SSCBA and ERA are decades old, but they are certainly pertinent as we cross the divide of April 6 2021. If a fee payer attempts, directly or indirectly, to deduct ErNI for a contract that spans 6 April 2021, then that deduction seems open to challenge as unlawful (whether or not it is not unlawful will depend on the facts).

[eek]

I'm at a loss as to why you are talking about illegal deductions as they just don't exist - Key Information Documents (used correctly) make them perfectly legal and they've been in place for a 9 months now.

But shall we go back to LM's original post - and note the bit in bold.

And my original post was regarding umbrellas.

You shouldn't be paying the employers NI from your day rate on an inside gig. Unless, of course, you're using an umbrella.

Haven't looked too closely for a while but I would expect illustrations for inside gigs to make it very clear what deductions the client / agency will be taking from your rate (isn't it going to be a legal requirement?).

Equally it's clear that you don't understand Fraidycats argument who is starting from his viewpoint that outside IR35 he earns £x a day (in a business to business contract) which I will say is £500 for convenience (it's more) so is complaining on the basis that 14% employers NI is going to be removed from what he currently receives. Heck this entire thread is about the fact his lifestyle is going to suffer if he is inside as the tax is so much more.

So we started off with someone talking about an outside IR35 to inside contract (to which LM adding the complexity of legality when it wasn't required and you joining in) when it really is as follows:

1) Advertised Day rates (Business to Business so outside IR35 going to umbrella but agencies will always advertise the maximum amount so umbrella rates are what they usually use)
2) Worker gets the contract
3) Key information document is sent that explains that the £500 a day was an "umbrella rate" and that the actual salary equivalent is £380 a day.

And the issue is that there are no illegal deductions at any point because we are talking about outside IR35 rates moving to the inside IR35 equivalent "Umbrella Rates" i.e. before any tax is deducted so that the rate advertised is as large as possible.

And my point has been that when you look at the practically of umbrellas we haven't seen a single employment tribunal confirming illegal deductions of Employer NI by an umbrella.

• The law firms trying to find cases are using a case that was won by default due to no response being given.
• The case I quote is the only 1 that refers to employers NI and that was argued as mis explanation and that the deductions were legal

And all these relate to contracts prior to April 2020 at which point

• Key information documents (and the umbrella version of that document explicitly) exist so that employer NI is always deducted legally - as the worker knows what is happening before he/she starts work.

So it's all fine and good actually quoting what the law says - I'm just pointing out that agencies and umbrellas know what the law is and follow it as demonstrated above and by the fact the issuing of key information document makes the deductions legal - all an agent needs to do is ensure the new document arrives before the worker starts any more work.

So it's nice that you quote the law in detail but

1. it is a complete red herring created by LM as Fraidycat was comparing outside IR35 with the additional tax implicit to IR35 and
2. it's irrelevant anyway as Key information documents exist to ensure everything is correct and explained before the worker starts work. Heck the Key Information Document example even cover the deduction of a DBS fee from the first pay pocket (you issue 2 Key Information documents 1 covers until the DBS fee is recovered - remembering it may take time as national minimum wage most always be paid and the second covering subsequent periods).

And then you add a comment regarding spanning April 6th which no one had mentioned until you did. But equally no agent will do that as come April any sane firm will be issuing a termination followed by a new contract to whatever company the worker wishes to work through that wasn't his old PSC.