Understanding the Need for an Uplift

Understanding the Need for an Uplift in Umbrella

So your Public Sector Body has determined that your current role is now deemed to be inside IR35. If you agree with this determination and have already been trading inside IR35 then the difference to your take home will mainly be down to the changes to Flat Rate VAT and the loss of your 5% allowance for running the company. You may decide that with the new rules for Fee Payers, to deduct tax and NI you would prefer to move to an Umbrella model where you will also receive full employment rights.

If you find yourself in a situation where you have been trading outside of IR35, but your new contract is now deemed to be inside, you will notice a substantial difference in your take home and before accepting the role you may want to negotiate an Uplift to the rate.

Here are some examples of the changes to take home pay that the new Legislation will cause.

Take Home Pay Illustrations

 

Pre April 2017 Outside IR35 Industry Flat Rate %

Post April 2017 Outside IR35 Flat Rate 16.5%

Post April 2017 Inside IR35 Flat Rate 16.5%

IT Consultant £350/day

£5269.33

£5171.05

£4470.97

 

Health care/Social Work £200/day

£3510.19

£3337.03

£2791.36


Assumptions: no expenses, accountancy fee £120 plus VAT, Umbrella Margin £10 per week, Personal Allowance £11,500 and salary taken equal to Personal Allowance

Agencies often quote a “Limited Company rate”, paid to contractors operating through their own Limited company or via an Umbrella Company. For those operating through a Limited company, outside of IR35, your take home can be planned tax efficiently to take advantage of the lower tax and NIC rates on dividends and the tax free allowance for dividends of £5,000 (2017/18). These tax planning opportunities are not available in Umbrella where the rate paid has to cover all employment costs:=

  • Gross Pay
  • Employers NIC
  • Auto-enrolment costs
  • Apprenticeship levy
  • Umbrella Company margin

So if you are switching to Umbrella following the new legislation you should try to negotiate an uplift to your rate to ensure your take home is not reduced. In the examples given above, the uplift needed is between 20% and 30% of the day rate. The £350 a day role needs to increase to £420 per day, in order for take home pay to be comparable at £5,251 and the role on £200 per day needs to increase to £260 a day to retain a take home of £3,492.

The message is clear – if you want to retain take home you need to ask for a rate increase. Obviously there’s no guarantee that this is possible, but if you don’t ask, you’ll never know.

We are seeing some high levels of success with Contractors negotiating increased pay rates in order for them to remain on the contracts in question. Many Public Sector Bodies just cannot afford to see good skills and exceptional talent disappear.

To find out more about how Orange Genie Accountancy could help you, please call 01296 468 185 or email accountancy@orangegenie.com.

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Orange Genie Accountancy offers fixed fee accountancy packages to contractors and freelancers. Each client has unlimited access to their own dedicated approachable and friendly accountant. All Orange Genie Accountancy accountants are specialists in the contracting market, so they can give you bespoke, high quality advice.

We will always keep you informed about anything that could affect you and your company. Our relationships with our clients are extremely important to us so we'll be in touch often, whether it be face to face, over the telephone or email.

Our packages start at £75 + VAT a month for an online service. Our most popular package is £120 + VAT a month which provides you with your very own dedicated accountant as well as:

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  • Annual Return
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​And much more, includingaccess to wealth management advice, IR35 reviews and pensions planning. 

If you would like to appoint Orange Genie Accountancy as your accountants please either fill out our enquiry form or give one of our friendly expert accountants a call on 01296 468 185 or email accountancy@orangegenie.com

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