We recently hosted an informational and engaging event for UK based contractors on the critical topic of IR35 and the different engagement options available.
Which option is best for you?
Further to our IR35 Contractor Event, we have compiled more information on the different engagement options available. Each company will make their own unique policy changes, so we cannot advise contractors today what your individual outcome will be.
PAYE refers to Pay-As-You-Earn Tax and is a method for contractors based in the UK to pay Income Tax and National Insurance before receiving their wages. The amount of tax and National Insurance paid is entirely dependent on the salary of the individual.
Further information regarding personal thresholds and rate bands can be found here:
For an estimate on how much Income Tax and National Insurance you would pay for the current tax year, there is a calculation tool available on the GOV.UK website.
You can find out further information about PAYE contracting via Morgan McKinley here.
An Umbrella company acts as an employer for contractors within the UK. Wages are still processed as PAYE and therefore Income Tax and National Insurance are deducted before a contractor receives their wages.
It is imperative that recruitment agencies work with Umbrella companies who meet legislative and regulatory requirements. Morgan McKinley only works with a select number of Umbrella companies who are accredited by both the FCSA and APSCO.
Specific benefits and charges vary from Umbrella to Umbrella, so you will need to do your due diligence to ascertain which Umbrella is best for you. Some benefits may include:
- Continuous employment
- Enhanced employee benefits
- Holiday pay up front
- Shopping discounts
- Medical/accident insurance
- Salary sacrifice schemes
As of 2016, the types of expenses which can be paid by the Umbrella are determined by the employee’s Supervision, Direction or Control (SDC) status. This is assessed on an assignment by assignment basis, and the Umbrella Company will be able to go through this with you in more detail.
Limited Company Inside IR35
It is recognised that there may be instances where contractors wish to continue working through their Limited Company, even when their current role is deemed to be inside IR35. In these circumstances, Morgan McKinley (‘the fee payer’) is responsible for ensuring the assignment income is taxed at source. As this is considered to be employment income, full PAYE taxes must be accounted for, including employer’s National Insurance, apprenticeship levy as well as employee Tax and National Insurance deductions.
Morgan McKinley has appointed Giant in offering a ‘fee paying model’ which enables us to continue working, where permitted by the end client, with Limited Companies in such contractual arrangements. In this contractual arrangement, there will be a 1% margin fee payable to Giant.
The advantages of this contractual arrangement include:
- Contractors have the opportunity to challenge an IR35 decision and potentially reclaim overpaid tax at a later date via a self assessment tax return
- It is easy to switch between assignments that fall inside or outside IR35 keeping income in one place
- Contractors can still claim business expense
Please see below an example illustration of how this would work and affect take home pay: