Self employment compare to paye,umbrella

I heard that working as self employed (ltd) may be the option for better earnings,because all you can do is make contributions yourself instead of your employer that means you dont have to pay that much back,compare to crap umbrella&paye with too many deductions anyone experienced?

joker83:
I heard that working as self employed (ltd) may be the option for better earnings,because all you can do is make contributions yourself instead of your employer that means you dont have to pay that much back,compare to crap umbrella&paye with too many deductions anyone experienced?

Hi mate, There are one or two threads on TN on being self employed, There are two avenues open to you, I see you put LTD company in brackets that’s a slightly more complex route to follow, or the second option is being sole trader. The problem with self employed is you cannot work for one company as a self employed Driver, as this breaks the laws on self employment. The easy way to explain the law is such, to be self employed you have to offer a service, but that cannot be just your Labour, you have to supply something like a vehicle OD, or some other service. It will not give you better earnings but you can get better Tax breaks, but again you can only get better Tax breaks by claiming on outgoings and if you are just supplying labour, then you would have no allowable outgoings. So back to square one mate.,.,. this might not be the answer you were hoping for but there you are… As for LTD company as I have said that is a more complex route to take, but the rules are basically the same…

I have been looking into this as the company I currently work for, who I wont name. Are the biggest load of ■■■■ bags going. Paying lip service to the law, if even that. Anyway…

You will earn more being self employed (either LTD or sole) vs full time PAYE. However, there are lots of things you need to take into account.

You get more because you have to deal with your own taxes. You don’t get holiday or sick pay and any extra you get has to take this into account. Plus the fact, you wont be working all the time and you need to find companies that will give you a contract to fill in as a relief driver.

Depending where you live, you will be able to charge roughly £15ph give or take a pound or 2. To be able to get this rate though you need to be able to prove to the companies that what you provide is something special ie ADR, HIAB, IPAF.

Experience. This is the number 1 thing that companies are looking for. They will not take on anyone that has just doesnt have enough driving experience, unless they get desperate. This is why the good agencies have Driver Negligence insurance cover, so that they dont have to pay out for any damage caused to the lorry.

You can get yourself some insurance to show prospective companies you are serious ie Professional Idemnity and Public Liability (inc Driver Negligence). This all adds on to your costs, taxable deductable expenses though :slight_smile:

Overall, as already said. You wont be on much better wages but you should be able to pay alot less tax.

I’m thinking that you could pocket roughly £900 for every £10k you earn. More than that though, you can work when you want and for who you want (after you have enough contracts, obviously).

yoyo5:
The easy way to explain the law is such, to be self employed you have to offer a service, but that cannot be just your Labour, you have to supply something like a vehicle OD, or some other service

And this comes from what legislation? Of course you can supply labour only, what do you think agencies do?

Hi one or two points to make from the previous post,.,. Firstly you can still only work as a relief driver for a short period of time ( weeks not months ) as self employed… for one company. As for Tax if you are only working as a driver and not supplying a claimable outgoing IE Fuel, Running costs, Parts, Ect, then you cannot claim against your Tax so it is wrong to say that you will pay less Tax in fact you will pay the same as an employed person., But you will not get any holiday pay or sick pay or pension contribution payments. And forget the old line about being able to work when and where you want ( C**P ) you still have to work, in fact as you would not have a regular Job you are forced to worked when ever you can just in case there is no work.,.,.,. One massive bit of advice I will give you, You have to be a certain type of person to work on your own account, it certainly does not suit 95% of the work force so make sure it will suit you before going there.

dcgpx:

yoyo5:
The easy way to explain the law is such, to be self employed you have to offer a service, but that cannot be just your Labour, you have to supply something like a vehicle OD, or some other service

And this comes from what legislation? Of course you can supply labour only, what do you think agencies do?

I suggest that you get your information correct, before putting the mouth into gear… Yes Agencies supply labour but they are registered as employment Agencies, They have offices, staff,and all the infrastructure, ect. And in fact they employ the drivers who they supply so the driver ( Labour ) IS employed and not self employed end of the lesson I think.

So those who are registered as Ltd companies and invoice said agencies are employed?

As a subbie maybe or more likely by themselves as labour only so they invoice for their services.

By your rules anyone who’s a Ltd must have a van/truck etc and can’t be only a driver?

Then a few on TNUK are illegal I suppose?

A lot of grey area I agree but a sweeping statement to say must supply something else as well as a driver is an even greyer area.

Is that part of lesson I wonder ?

Guess we will have to agree to disagree.

HMRC guidelines actually dictate that in a period of 24 months you should not be working for 1 company for more than 40% (just over 9 months) of the time in order to keep your self employed status. Plus a few other little things. Check out IR35.

As far as tax goes, no you cannot claim an awful lot back. However, pay yourself the bare minimum less than £10k, to stay under tax threshold. Pay corporation tax on turnover minus wages and expenses. Payout dividends at 10% tax with no NI liabilites.

Say £20K turnover. £10k wages, £250 NI, £275 employers NI, no tax. Vehicle allowance 45p per mile (10k miles avg) = £4500 tax deductable. Accountant etc. another £800 = tax deductable.

£20k - £10k - £275 - £4.5k - £800 = £4425 tax this at 20% = £885 to pay tax man

So to sum up total tax, NI and accounts/misc fees is £2210 as LTD.

On PAYE fulltime at £20k pa, total deductions are £3450.

So on £20k pa Im better off by £1200 self employed. Thats not even including being VAT registered on the low rate VAT scheme and being able to keep half the VAT.

All values are a rough guideline and not 100%

bobdebouwer:
HMRC guidelines actually dictate that in a period of 24 months you should not be working for 1 company for more than 40% (just over 9 months) of the time in order to keep your self employed status. Plus a few other little things. Check out IR35.

As far as tax goes, no you cannot claim an awful lot back. However, pay yourself the bare minimum less than £10k, to stay under tax threshold. Pay corporation tax on turnover minus wages and expenses. Payout dividends at 10% tax with no NI liabilites.

Say £20K turnover. £10k wages, £250 NI, £275 employers NI, no tax. Vehicle allowance 45p per mile (10k miles avg) = £4500 tax deductable. Accountant etc. another £800 = tax deductable.

£20k - £10k - £275 - £4.5k - £800 = £4425 tax this at 20% = £885 to pay tax man

So to sum up total tax, NI and accounts/misc fees is £2210 as LTD.

On PAYE fulltime at £20k pa, total deductions are £3450.

So on £20k pa Im better off by £1200 self employed. Thats not even including being VAT registered on the low rate VAT scheme and being able to keep half the VAT.

All values are a rough guideline and not 100%

I gather that you are working this out as a LTD company and not a sole trader.

Worked out for a LTD company yeah, not sure about sole trader as some of the deductions are different.

Dam, forgot and paying out the dividends. Your left with just under £9k, you can either leave it there or take it out of the business. Depending on what tax bracket your in, most likely under £32k pa, then its just 10% tax to pay.

Now if your charging VAT and on the low rate scheme. £4k extra, £2k goes to HMRC and you keep £2k. Which almost pays for your tax bill :slight_smile:

There are still lots of things you can make deductions for ie phone, broadband, use of electricity and gas etc. All of those, plus more can be used to lower the corporation tax bill, but thats what your accountants for.

I wouldnt touch an Umbrella scheme either.

bobdebouwer:
Worked out for a LTD company yeah, not sure about sole trader as some of the deductions are different.

Dam, forgot and paying out the dividends. Your left with just under £9k, you can either leave it there or take it out of the business. Depending on what tax bracket your in, most likely under £32k pa, then its just 10% tax to pay.

Now if your charging VAT and on the low rate scheme. £4k extra, £2k goes to HMRC and you keep £2k. Which almost pays for your tax bill :slight_smile:

There are still lots of things you can make deductions for ie phone, broadband, use of electricity and gas etc. All of those, plus more can be used to lower the corporation tax bill, but thats what your accountants for.

I wouldnt touch an Umbrella scheme either.

Bobdebouwer is correct when he mentions IR35 and it does stem from invoicing only for “wages”. It is what HMRC call “deemed payments”.

Drivers will argue with some saying that it is a legitimate way of being remunerated and others that will say it is not. I personally believe it is not legitimate but HMRC seem to be awfully slow in doing anything about it.

Up to a few years ago the trend was to be self employed when working through an agency but HMRC finally scuppered this after many years of hesitation and I believe that the Limited Company route will follow. But maybe not anytime soon. The only reason I am Ltd is because lots of agencies have stopped PAYE and umbrellas rob you blind.

I often wonder how accountants justify the Ltd Co set up with respect to IR35 when a driver is only working for one organization for deemed payments. It does not matter if you work for one agency and they send you to different firms you still only have a contract with that one agency.

Chaps that get their own work from many different firms may well be in a stronger position regarding IR35

There is, IMO, not much that a driver can claim for in the way of expenses and benefits that a PAYE driver could not claim. When these “expenses” are taken into account things may not be so clear cut. The expenses claimed by some are not legitimate like large claims for phone, broadband, heat and light etc. My use of these is very light with a few emails and the agencies almost always ring me. If the taxman comes can you justify your claims.

For example the travel expense at 45 pence per mile could be claimed by a PAYE driver if he could demonstrate that he is travelling to a temporary workplace BUT HMRC have very strict rules on what is or is not a temporary work place. Another expense open to all is a daily meal allowance of £2.00 per day. This is a flat rate and no receipts are needed.

Ltd company chaps can make further savings due to a current scheme that scraps the first £2,000 per year employers NI. But don’t be fooled by the dividend at 10% as corporation tax is calculated after wages etc but before dividend so you still pay tax at 20% but you may make savings on NIC.

A lot of agencies and umbrella companies pay the mileage expenses and an enhanced meal expense of £10.00 per day without properly ensuring that the driver actually qualifies. Again they seem to get away with it year after year as HMRC are so lax. When/If the crunch comes I feel that it will be the driver who faces the repayment demands from HMRC.

Not many drivers get into trouble under a PAYE scheme but I personally know of 2 drivers who are in big trouble trying to go it alone on the LTD route. An accountant for many will be a sensible expense but do not be fooled by claims that an accountant will save thousands for a driver just invoicing for his time.

The flat rate VAT scheme could add an extra 7% ish to net wages but again more forms for you or more expense to an accountant. You do not gain half as you collect VAT on net sales at 20% but pay VAT at 10% on gross sales. So on £100 you charge £20 Vat but need to send £12 to the tax man. A gain of £8 but then you have to pay CT on the £8 leaving a net benefit of £6.40. There is a 1% discount in the first year.

The modern way is wrong and we should all just get decent wages and not have to be involved in these schemes.

Just look at the city link situation. Years ago a lot of these drivers would have been PAYE van drivers. If the company went bust there were avenues from which the employee could recover lost wages and maybe get some redundancy. Now those drivers who have paid for franchises and those with outstanding invoices are set to lose money with no help except the dole.

Over Xmas me and my mate have been on holiday. He is Ltd, I’m PAYE. I got paid £600 holiday pay, he got nowt. He earns £1/hr more than PAYE and I only started in September and have only put one full week in because my back limits the amount of work I can do so it tends to be 2-3 day week averages. Because he’s crap at maths, crap at doing admin and crap at invoicing (he’s been self employed before) he pays an umbrella company. I claim for almost everything that he does apart from umbrella fees. He’s maybe £30 a week better off for a full 50+hr week but like I said, this week I’m £600 better off than he is.

In regards to the flat vat scheme Shake mentioned, my friend has recently come across a problem with it. A guy who had work available was going to use him however that guy is also on the flat vat scheme. Because they’re both VAT registered but because of how flat vat works meaning you’re unable to claim it back, he ended up not giving my mate work because it would cost him £1/hr more than employing someone not vat registered or on PAYE.

However one thing hasn’t been mentioned and it is something that can seriously screw up your life. To be better off than those on PAYE it requires lots of things to be claimed as expenses on paper and paid out into your bank as such. This means that for tax purposes your pay is lower. Where this comes and bites you in the arse is when you come to buy a house, want a loan to buy a car, want to apply for a credit card, even want to rent a flat. They work out whether you qualify based on your pay, the line on the wageslip that says “Taxable Pay”. They don’t work it out based on what goes in the bank as a lot of that is payment for expenses on paper and/or dividend so its not classed as income for the purposes of loans, mortgage etc. Only the stable part of your income is, your basic wages.

An example is you could earn £30,000 from the agency, £20,000 of it goes through as expenses and dividend so on paper you only earn £10,000 to keep you below the income tax/NI threshold even though almost £30,000 goes in the bank. £30,000 could qualify you for a mortgage on the house you were hoping to buy, £10,000 - the amount it states you earned on your payslip/P60 - would mean you couldn’t qualify for a mortgage even for a cheap craphole in Hull and forget being able to get a loan for anything.

Shake’s post is absolutely spot on. There are some slight advantages but you’re gambling against the risk of HMRC cracking down and the agency just flat out refusing to pay you. Given that HMRC also run tax credits not only could you land a big bill from them for unpaid income tax/NI but if you claim tax credits based on your lower taxable income, that would also be repayable as well. Personally I don’t think the risk is worth it nor how it would affect me down the line if I ever wanted to buy a new house or get a loan for something.

Thanks Shake for making this all a bit clearer to those that questioned my post,. Although I was really answering mainly from the Sole Trader perspective, you have also made it clear that being LTD is not the holy grail of being self employed, that people claim.
Personally I have always gone down the route of Sole Trader / OD, as it is so simple to work, as you only have two columns to fill in that’s Money in & Money out and whats left is called profit to which you pay Tax. But I have found that with a bit of clever Accounting you can write off a very large proportion of your Tax liability ( IE Almost Nil Profit ). But as they say its horses for courses… :smiley:

yoyo5:
…to be self employed you have to offer a service, but that cannot be just your Labour, you have to supply something like a vehicle OD, or some other service…

Incorrect.

You can be self employed and purely offer labour, your labour is a service - no issues - thats what the bulk of self-employed people do, they supply only their labour, nothing else. You can supply Goods (an actual item) & Services (your time & labour), or just the Services, or just the Goods.

i.e. a Bricklayer, Mr Builder supplies the bricks, self employed Mr Brickie lays them

There is a huge difference between being a Sole Trader and running a Limited Company.

Limited Company
A limited company is an organisation that you can set up to run your business - it’s responsible in its own right for everything it does and its finances are separate to your personal finances. Any profit it makes is owned by the company, after it pays Corporation Tax. The company can then share its profits to its shareholders. Every limited company has ‘members’ - the people or organisations who own shares in the company.

Sole Trader
If you start working for yourself, you’re classed as a self-employed sole trader - even if you’ve not yet told HM Revenue and Customs (HMRC). As a sole trader, you run your own business as an individual. You can keep all your business’s profits after you’ve paid tax on them. You’re personally responsible for any losses your business makes.

Below is a great little blog for people thinking of setting up as freelance drivers. It explains the basics in setting up and has got links to the relevant inland revenue pages, flat rate VAT pages, etc.

http://freelancelorrydrivers.blogspot.co.uk/

yoyo5:
Hi one or two points to make from the previous post,.,. Firstly you can still only work as a relief driver for a short period of time ( weeks not months ) as self employed… for one company. As for Tax if you are only working as a driver and not supplying a claimable outgoing IE Fuel, Running costs, Parts, Ect, then you cannot claim against your Tax so it is wrong to say that you will pay less Tax in fact you will pay the same as an employed person., But you will not get any holiday pay or sick pay or pension contribution payments. And forget the old line about being able to work when and where you want ( C**P ) you still have to work, in fact as you would not have a regular Job you are forced to worked when ever you can just in case there is no work.,.,.,. One massive bit of advice I will give you, You have to be a certain type of person to work on your own account, it certainly does not suit 95% of the work force so make sure it will suit you before going there.

Firstly wrong you can work full time on a rolling short term contract .

2nd don’t set up as driver services

You can work full time and many do

  1. Go see an accountant who will be able to give you some proper advice.

Working self employed is different to working paye you have to do some shifts you may not want to do some companies will exploit this and it will mean working weekends. Try and build up a few companies that will use you.

Get it right it will work out better than paye as long as your pricing is right

[quote="
2nd don’t set up as driver services

[/quote]
Hi alix
Curious to know way not Driver Services ?

I think the idea is for the bricklayer to be working for many different people and not return to any on a regular basis. This could mean doing work on private houses etc and if there was anything wrong with his work then he would be expected to redo that work without extra payment.

If the bricklayer was working on a site there are special rules for the construction industry laid down by HMRC, Construction Industry Scheme, and there are big penalties for not following the rules.

If a Mr Big set himself up to find bricklaying work and if the bricklayer was given work at different sites by that Mr Big and that Mr Big also pays the bricklayer then there is a case that the bricklayer works for Mr Big and therefore the bricklayer is an employee. For lorry drivers replace Mr “Big” with an agency.

It is good that contractdriver points out the difference between self employed and having a Limited company. This has been said many times before but not everybody listens.

The blog quoted by contractdriver makes everything seem fantastic but then it is written by an Agency (vested interest??) and some things are not quite correct.

Such as

Why would working through your own Ltd Co make any difference to the work that you could accept or refuse from that agency as opposed to any other driver at that agency whether on PAYE or umbrella?

The blog is trying to discourage the driver from going direct to firms by quoting 60 day payment. The payment time would depend on what you negotiate with any company. If you do not like the terms then you can walk away. But if the firm went bust before paying you then you would lose money as you would do if an agency went bust before paying you.

The bit about mortgages is a bit misleading for as Conor said (in his very good post) the less you make your wages the less you can show to lenders and if you claim tax credits on artificially low wages you could end up in jail. Conors post is well worth rereading.

It matters not a jot if your accountant is VAT registered what matters most is that they are good at their job although I suspect that a lot of accountants will be forced to be VAT registered because of their turnover. So listen for recommendations from other people in similar situations.

Most if not all agencies will want to see your VAT registration letter and mine at least does not contain any information that an agency should not see. My VAT acceptance letter does not have my bank details on it but you will need to give these details to the agency anyway to get paid. And do not forget that every time you write a cheque you are divulging your bank account number and sort code.

There is no advice about what you can claim for as expenses. Some people think that you can claim for all sorts of stuff that you simply cannot claim for. Genuine expenses are few.

I don’t know if yoyo5 was being a bit tongue in cheek when he said that with a bit of creative accounting he could get his HMRC bill to near zero. Paying no tax on a wage of about £20,000 to £30,000 is impossible without cheating and if you did that then be ready for the striped suit.

shake:
The blog is trying to discourage the driver from going direct to firms by quoting 60 day payment. The payment time would depend on what you negotiate with any company.

This. I had 60 day payment terms with one company I drove for, Arla. A couple were 30 days, most were a week - usually they were happy paying me at the same interval they paid their own employees. The guy I currently drive for seems to have weekly terms with the people he supplies to and also drives for himself.

He is actually probably one of the most legit people driving for an agency as self employed that I know. He drives for an agency self employed but also drives for his own clients. He has a handful of drivers he employs which he also sends on jobs to his own client as well as to the agency that he drives for, effectively subbying us to the agency. And because the agency he drives for pay self employed properly paying 30% or more above the PAYE rate and not just an extra quid an hour, he is able to pay us within pence the same hourly rate as that agency’s PAYE drivers are on including paying us holiday pay in addition to that as well.

He has nothing to fear from any future IR35 style crackdown unlike the vast majority of the pseudo self employed working for one or maybe two agencies.

Running as a Ltd company I’m registered with about 10 agency’s and 4 haulage companies.

All of the agency’s pay the ltd company within seven days of invoice’, one of the haulage companies pays within in seven days of a weekly invoice, the other three pay me within 30 days of a monthly invoice. I work a month, write out the invoice, email it and I’m paid within 30 days of the invoice making a total of about 60 days before receiving payment. I would love to be paid weekly, but it seems that’s it’s just not in the regular haulage industries nature to pay weekly.

Thank god not an owner driver, all that diesel, tyres and overheads shelled out for the invoice to be paid in 90 days!.. owner drivers must have mahoosive cahoonas to take on these huge debts!

As you all know January to March agencies can go a bit quiet, as they try to share out the little work they get amongst their drivers, so i seek the work direct, local tipper work is pretty much all year around, and there is nearly always a driver or drivers at most haulage companys who has gone sick, needs time off, has been suspended, going on holiday… and a regular for me nowadays ‘getting divorced’ and needs a few weeks off.

A few of the haulage companies i have worked for wouldn’t entertain ‘self employed’ drivers anymore because they have been stung afterwards by the inland revenue and are having to pay the ‘self employed’ drivers Tax, N.I contributions and Employers N.I many years after they had been paid by the haulage company.

I also find many haulage companies who wouldn’t use an agency or agency driver, would use a limited company freelance driver who turns up smartly dressed (as a driver) with a small, professionally written brochure about what they can do and have done, their experience, qualifications, liability insurance, their cards, driving licence and contact details.

P.S. That little blog was written by a friend of mine with some input from myself :blush: (at the request of a small agency, to help their own drivers to use it as a basic guide) If you let me know what bits are wrong (E.g. the VAT certificate part) or other parts to correct and it will be done.