Dear Moderator,
I would like to throw this out for discussion if possible as it seems it is a hot topic……
The self-employed umbrella proposition rests on an alternative interpretation of the IR35 section “provision of personal services through an intermediary company”.
The driver of IR35 is to “remove opportunities for the avoidance of tax and Class 1 National Insurance Contributions (NICs) by the use of intermediaries, such as service companies……. than that which would apply if the worker were to be taken on as a direct employee of the client”
PAYE Umbrella companies interpretation is that, by applying an “Over-arching” contract” each assignment is temporary and expenses including Employers NI can be deducted as a salary sacrifice prior to calculating Tax and NI. As you know, this has led to widespread abuse of expenses dispensation (at no risk to the umbrella, only the contractors) and has the unfair consequence to the contractor of inflating his rate by 12% Employers NI and any other benefit charge-ons.
I think this is tortuous. However, the Chancellor/HMRC must put contractors somewhere and PAYE Umbrellas are as good a solution as any to replace the MSC model they have legislated out of existence. It also makes it easy to increase revenue by disallowing certain expenses which is much quicker than legislation.
This puts contractors in the invidious situation of getting no employment benefits, security etc as would be accrued if they were employees and getting very little benefit from sacrificing these i.e why should a contractor pay the same as an employee if he/she gets none of the benefits.
Alternatively, if the client took on a self employed worker directly, the client would pay him/her gross and that worker would be responsible for their own tax and NI at the end of the year. The same rules should apply if the client takes on a self employed worker through an agency.
Is not the spirit of IR35 better followed by this model than the PAYE umbrella?
The model benefits the contractor with gross payments, Class 2 NI (protecting state benefits) @ £9.60/month, Class 4 NI @ 8% instead of 11% with £5761 allowances and, in addition, legitimises expenses claimed exclusively and necessarily in the performance of their duties against tax. Also, an additional benefit accrues to the contractors/agencies/umbrellas/clients that self-employed workers are exempted from the forthcoming Agency Workers Directive thus considerably reducing costs.
We believe there are a large number of contractors and freelancers working through agencies that fulfill the HMRC ESI criteria for self-employed status but don’t do it because they cannot get work through an agency as a sole trader. It is these workers who are now offered this choice through a compliant self-employed umbrella like ICS Limited.
Those with the earnings and long term commitment will have a PSC. Those workers who work through agencies for flexibility and variety will stay with PAYE Umbrellas. We feel the choice should be there for those contractors stuck in PAYE umbrellas or on agency payroll to whom maximizing remuneration against risk is their raison d’etre for contracting in the first place!
I would very much appreciate your comments on this!
I would like to throw this out for discussion if possible as it seems it is a hot topic……
The self-employed umbrella proposition rests on an alternative interpretation of the IR35 section “provision of personal services through an intermediary company”.
The driver of IR35 is to “remove opportunities for the avoidance of tax and Class 1 National Insurance Contributions (NICs) by the use of intermediaries, such as service companies……. than that which would apply if the worker were to be taken on as a direct employee of the client”
PAYE Umbrella companies interpretation is that, by applying an “Over-arching” contract” each assignment is temporary and expenses including Employers NI can be deducted as a salary sacrifice prior to calculating Tax and NI. As you know, this has led to widespread abuse of expenses dispensation (at no risk to the umbrella, only the contractors) and has the unfair consequence to the contractor of inflating his rate by 12% Employers NI and any other benefit charge-ons.
I think this is tortuous. However, the Chancellor/HMRC must put contractors somewhere and PAYE Umbrellas are as good a solution as any to replace the MSC model they have legislated out of existence. It also makes it easy to increase revenue by disallowing certain expenses which is much quicker than legislation.
This puts contractors in the invidious situation of getting no employment benefits, security etc as would be accrued if they were employees and getting very little benefit from sacrificing these i.e why should a contractor pay the same as an employee if he/she gets none of the benefits.
Alternatively, if the client took on a self employed worker directly, the client would pay him/her gross and that worker would be responsible for their own tax and NI at the end of the year. The same rules should apply if the client takes on a self employed worker through an agency.
Is not the spirit of IR35 better followed by this model than the PAYE umbrella?
The model benefits the contractor with gross payments, Class 2 NI (protecting state benefits) @ £9.60/month, Class 4 NI @ 8% instead of 11% with £5761 allowances and, in addition, legitimises expenses claimed exclusively and necessarily in the performance of their duties against tax. Also, an additional benefit accrues to the contractors/agencies/umbrellas/clients that self-employed workers are exempted from the forthcoming Agency Workers Directive thus considerably reducing costs.
We believe there are a large number of contractors and freelancers working through agencies that fulfill the HMRC ESI criteria for self-employed status but don’t do it because they cannot get work through an agency as a sole trader. It is these workers who are now offered this choice through a compliant self-employed umbrella like ICS Limited.
Those with the earnings and long term commitment will have a PSC. Those workers who work through agencies for flexibility and variety will stay with PAYE Umbrellas. We feel the choice should be there for those contractors stuck in PAYE umbrellas or on agency payroll to whom maximizing remuneration against risk is their raison d’etre for contracting in the first place!
I would very much appreciate your comments on this!
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