Contractors' Questions: Is my brolly right to deduct two lots of NI?
So I’ve opted for an umbrella company to administer my PAYE, but I‘m confused why I’m having deducted from my daily rate NI for both the employer and the employee. Surely under the new IR35 guidelines, I am classed only as an employee?
Expert’s Answer: To put this into context, let me start by explaining that the rate you are given is regarded as your contract rate and should include an uplift, which is deemed to cover the additional items you mention. The contract rate is agreed via the business-to-business contract and is deemed to be the monies received by the umbrella company for the works undertaken.
Next, let me ensure that you understand that all umbrella companies, as employers, have a legal obligation to pay employer's national insurance contributions to HMRC. These contributions are made from the funds received from the recruitment agency/end client with whom the umbrella company will have a business-to-business contract; they will also deduct their margin from the contract value.
You will work with the umbrella company under an overarching contract of employment and your salary will be subject to income tax and employee's national insurance contributions. Your salary is calculated as the contract value, less the umbrella company's margin, less the amount payable to HMRC for employer's NI. This model is the same for all umbrella companies as they all have to comply with the regulations, which surround PAYE.
Lastly, you mention your status in accordance with the new IR35 rules. However for compliant umbrella companies, the Intermediaries legislation does not apply as all earnings are subject to employment taxes, paid via PAYE and reported via RTI (Real Time Information) direct to HMRC.
The expert was ‘Roger, the retired tax inspector,’ a compliance adviser to All Umbrella Companies Are Equal.