New legislation (April 2017) has been enacted to force public entitled (NHS, municipalities etc..) to deduct PAYE and NI on payments to contractors using limited companies. In response we have already seen agencies and public sector entities issuing communications to clients saying they are restricting the use of limited companies and favouring the use of umbrella companies. For further detail on the new rules click here.
How will moving to an Umbrella Company impact me? It is important to note that moving to either a permanent position (PAYE) or Umbrella Company setup will result in you being paid a salary in full and being taxed as such (no tax planning available). See flow diagram below explaining the Umbrella Company structure:
In an Umbrella Company setup, while you can claim certain expenses which will reduce your tax liability, you will effectively take home less pay as the Employer National Insurance contributions will need to come from your invoice rather than from the employer (in essence unless your expenses are more than ~13.8% of your turnover you will be better off on a PAYE basis).
The only way to get round this is to negotiate a higher base rate because you need to use an umbrella company – this is not always possible.Why choose an Umbrella Company?The Umbrella company package does not require you to have your own company and does not have the same administrative or regulatory constraints as a ltd company as we look after the admin for you. You also do not need to worry about IR35.
The umbrella company setup, although not as desirable for take-home pay, does still give contractors the ability to contract to the public sector if they are not offered a permanent position with the agency/public sector employer.How can SAIL assist me? SAIL will do everything for you:
- provide a portal to allow you to view previous payslips and expense submissions
- receive payment from your agency/client
- make payment to HMRC for your PAYE/NI contributions
- make payment to your personal account for your salary and expense claims weekly/monthly
We are also able to tidy up your previous limited company should you be a contractor to the public sector who needs to wind down as of April 1st 2017.