Day Rate & Take Home Pay

Day Rate and Take Home Pay

So you may have been told that your assignment is now inside IR35, or that you are required to use an umbrella company. If this is the case then you need to make sure that you are looking to achieve the right contract rate for your assignment, one that you are comfortable with.

Working via an umbrella company you need to be aware of the deductions that are taken from the monies received by the umbrella before your taxable salary is calculated (ie the value used to calculate your Employee’s NI and PAYE tax).

Detailed below is a snapshot of a range of day rates and the anticipated take home that you should expect if you are working via an umbrella. Please note we have to make certain assumptions when producing these illustrations.

Take Home Pay Breakdown from £100 per day to £1,000 per day

Assumptions:
This includes a standard 1250L tax code on a week 1 basis – this means that we will only take into account a single tax free allowance for this period. We never include any allowance for any expenses for tax relief purposes, and there is no pension included (with Clarity Umbrella you will be auto-enrolled into the our pension scheme 3 months after your assignment start date). We do not look to include any student loan calculations either.

If you do require a bespoke calculation, then please feel free to complete our Bespoke Calculation form and we will be more than happy to provide you with an illustration.

Image by Gerd Altmann from Pixabay

IR35 Alternative Models

We are aware of two options that businesses are currently considering but are there really any work arounds? In reality probably not!

We know what HMRC are looking to achieve, so could these options leave contractors and recruiters at risk?

Consultancy Work

Consultancy work is where the business acting as the consultancy will take responsibility for the delivery and quality of the services, this may involve taking on a larger project and sourcing expert contractors to deliver the work.

This will require the consultancy to provide increased insurance coverage and a consultancy model is particularly risky if there are no internal expertise on the type of service they are providing – at which point a project manager my need to be hired.

When used appropriately, this type of contract falls out of scope of the public sector off-payroll working rules.

From April 2020, if you are operating as a consultancy providing an outsourced service to your end-clients, for the purposes of the off-payroll working rules, you will be deemed as the client and therefore responsible for making the status determination statement.

Statement of Work (SOW)

The second option is a Statement of Work (SoW) or outcome-based contract.

If appropriately executed, it is likely to be “outside IR35” compared with the traditional time-based contact on a set hourly or day rate.

It may be possible for the client to have a direct contractual right to sue the contractor for poor services or failure to deliver meaning a recruiters risk is reduced (although clients may often prefer the security of pursuing the recruiter).

Furthermore, it is more likely that an assignment will fall “outside IR35” if the performance of the services carries a genuine business risk, e.g. payment is conditional upon acceptance of services or satisfactory performance, and rectification of defects or poor performance are made at the contractor’s cost.

Although this may seem like an easy option to adapt to the new rules, a recruiter will remain at risk if the reality of the contractual performance does not reflect the contractual wording.


In reality any work around for the new IR35 rules is likely to upset HMRC, and could lead to a crack down later on down the line.

Image by Arek Socha from Pixabay

When the IR35 Rules Apply

Assignments “Inside IR35”

So we are all seeing posts about who is liable to employment payments, whether uplifts need to be provided or whether contract rates are deemed acceptable to provide to the contractor.

Well if the client determines that an assignment is “inside IR35”, you need to understand what options are available in terms of an alternative to an off-payroll model.

The options are:

PAYE payroll (agency workers)
Where a recruitment business contracts directly with the worker and operates tax and NICs under agency rules and provides the workers with worker rights – the off-payroll working rules DO NOT apply.

Pay rate should be quoted as TAXABLE SALARY.

Umbrella Company
Where an umbrella company employs the worker directly, the off-payroll working rules DO NOT apply.

Pay rate should be quoted as CONTRACT RATE.

“Inside IR35” PSC
Should you wish to continue to engage as a contractor via your PSC who is deemed “inside IR35”, your recruiter will need to calculate a “deemed employment payment” using the RTI (Real Time Information) payroll system. The deemed employment pay rate is the income of the worker after deductions, including both employee and employer NICs and the Apprenticeship Levy. Neither worker rights nor stakeholder pension rights apply. No expenses allowance applies. The off-payroll working rules DO apply.

Pay rate should be quoted as TAXABLE SALARY.

Image by Gerd Altmann from Pixabay

IR35 in the Private Sector is coming… but are you prepared?

IR35 in the Private Sector is coming… but are you prepared?

Private sector firms need to prepare and take their time to understand the complexities of the incoming IR35 tax avoidance reforms or risk losing their contractor talent!

Under the reforms due in April 2020, medium to large private-sector organisations will take responsibility for determining whether the contractors they engage with should be taxed in the same way as salaried employees (inside IR35) or off-payroll workers (outside IR35).

Under the current legislation, it is down to contractors to self-declare how they think they should be taxed.

In April 2017, the IR35 reform in the Public Sector was introduced and in the lead-up to and aftermath to these changes, there were numerous reports of contractors walking out across government departments, and claims that many had had their engagements incorrectly classified.

It is now feared that the same could happen again once the reforms apply to the private sector, unless firms take the time now to get to grips with the rules and their new responsibilities and we are starting to see some of the tell tale signs emerging…

Barclays prepare for IR35 reforms…

According to HMRC’s IR35 guidance, organisations are supposed to assess the tax status of each contractor they engage with on an individual basis, but evidence from the Public Sector Reform suggests that has not always been the case and the announcement by Barclays has come as no real surprise!

A knock on effect of large businesses refusing to engage limited company contractors due to IR35 changes from April 2020 has begun. Morgan Stanley and M&G Investments, Barclays and Lloyds have now all said that they will not enter into contractual agreements with PSC engagements.

IR35 & Working with Clarity Umbrella

For those contractor’s caught in the cross fire, working via an umbrella company may be one of the options they have moving forwards. If you are looking to operate via an umbrella then you need to make sure you understand exactly what you are getting before you accept the assignment.

One of the biggest changes will be that to your take home, if you are not able to negotiate a rate increase, then please do use our online calculator to assess what your take home may be working as an employee of the umbrella.

Photo by JESHOOTS.com from Pexels.

What does an umbrella company do?

So we’ve been asked to explain in simplistic terms what an umbrella company does! So here goes…

Working via an umbrella company is an alternative to operating your own Ltd company. It was deemed an option that required minimum hassle, minimum paperwork and ensured all taxes were paid at source under PAYE.

At Clarity, we run payroll for individuals who are working on a temporary assignment with a client, but wish for their taxes to be taken care of and to work under a contract of employment giving them statutory employment rights.

In April 2020, the way in which end clients engage with contractors is about to change (applicable to medium / large businesses). This is covered under a piece of legislation called IR35. If the end client deems an individual is akin to an employee, then HMRC expects them to be paid as an employee ie paying PAYE taxes, not drawing dividends!

Working via an umbrella company, the brolly is deemed the employer and the end client’s liabilities for tax are negated.

The contractor, should I say employee, is employed under a contract of employment, receives a payslip everytime they are paid, and at the end of the employment they will receive a P45, as per standard employment.

BUT, working via an umbrella company is not exactly the same as normal employment, so you will need to ensure that you know exactly what you are getting before you sign up.

For more information on understanding your take home through an umbrella please click here.