IR35 v PAYE.. SO CONFUSED

[Ihateboris]

Help! I've been working on a PAYE basis for a company for a year. Having recently requested a pay rise, they have offered a slight increase in my hourly rate, but only under the ir35 rules. What does this mean?? Will I be paying more tax? Do I have to set up a limited company? I'm rubbish with computers and administration 😒 please help 🙏

HMG's explanation is here:

https://www.gov.uk/guidance/understanding-off-payroll-working-ir35

Do they mean your whole engagement will be moved off payroll or that they intend, by some device or other that only the increase will be paid that way?

This is probably territory where professional advice is needed as IR35 can get messy.

My understanding is that if you are inside ir35 you are treated as an employee. If you are outside ir35 then you need to set up a company etc. Not really sure what ir35 has to do with anything if you are currently PAYE….

Also if you are currently employed by them and they want to transfer you to off payroll the likelihood of you genuinely meeting the off payroll criteria (there's an Ir35 HMRC checklist you can do ) rather than it being a tax avoidance measure is low.

Apologies, yes, the whole amount will be under IR35. Apparently I'll need to set up a limited company and register for VAT. I just don't understand why they won't just pay the increase hourly rate under the existing PAYE 😕 Thanks for the link.

I guess they save money one way or another.

Personally, I'd want a lot more than 'a slight increase in my hourly rate' to accept the costs of IR35 and loss of my protections as an employee.

I would not do this - as another PP has said, if you’re doing the same job but as a contractor (IR35) not an employee (PAYE) then the chances of it genuinely being a contractor arrangement is virtually none and it’s just tax avoidance.

It will be to save them some employer national insurance contributions I suspect. Tell them you need advice on the implications before you can accept, and ask them to either provide that advice (suspect they'll say no), or fund it.

A cheap high street solicitor should be able to provide broad advice for £500 or so

PAYE: your rate is £20 per hour. You get £20 minus employees NI and your income tax at whatever is the correct rate. It costs your employer £20 plus employers NI (12% I think)

IR35: set up a company, your company charges £25 per hour plus VAT (maybe). You only need to register and charge vat if your company income is over a certain amount. Out of that £25 you pay all the costs of running a company, your wages , and employers NI. And hassle.and holiday pay. And you might lose any accrued employment protections too.

i would want a LOT more than £25 instead of £20 to be doing this!!

however you could look for umbrella companies that manage contractors and chat to them about what increase would be worth it if you are going to go ahead!

Can't tell you where I've read this but have done a few times, but if you are to become a contractor your rate should be double that of a PAYE employee. It is to take into account all the additional costs you would bear (compliance costs, NI) plus loss of benefits like sick pay and holiday pay.

If they are only offering you a small increase I wouldn't bother. You might even end up with a net pay cut!

Thanks everyone for replying so quickly. Really appreciate it 🙏

How long have you been working for the company?

Call me a cynic, but you are cheaper and easier to get rid of as a contractor (no redundancy), they won't need to pay you sick leave, pension contribs and annual leave etc.

DH had a spell of being an IT contractor and his day rate was considerably higher than his recent salaries.

Find yourself a good accountant familiar with VAT and IR35 tax allowances if you go down that route.

It doesn't sound particularly self-employed to me.