Contractor Question: My daily rate has been reduced and I don’t understand why.

I have been a contractor with Huntswood working at same place for over 2 years on £140 per day and cannot claim expenses due to length of time. I assume therefore that I was advised that a PAYE scheme would be better but my daily rate was reduced to £121for NI purposes and tax code shows month 1 each month? why is this and why do some umbrellas offer employee benefits such as holiday pay etc? I am confused…

Good afternoon Craig and thank you for your message.  Can I preface my remarks by saying that it is very difficult to give you specific answers without much more information.
 
For example you say that you have “been a contractor with Huntswood working at same place for over 2 years”.  You don’t say in what capacity you have been doing that work so can you please say by whom you were/are employed.  I ask, because given the provisions of IR35 I would be surprised if HMRC accepted that you were self employed.
 
My guess from what you go on to explain is that you were not originally working as an employee and that Huntswood have offered, or are about to offer, you a Contract of Employment.  Should you become their employee then Huntswood immediately have to accept responsibility for paying Employers National Insurance Contributions to HMRC and that is probably why they wish to recoup that cost through a reduction in your daily rate.  I stress that is “my guess”.
 
As far as your tax code is concerned only your payroll staff or HMRC can advise you why it is being operated on a Month 1 Basis.
 
Turning to Holiday Pay all employers have to provide a statutory entitlement to holiday to all their employees and currently this entitlement is 28 days per year.

I repeat that much of my response is based on reading between the lines of your message so if I have misunderstood your circumstances please get back to me with more detailed information about those circumstances.

Roger Westlake is the Compliance Manager for Contractor Umbrella Ltd, one of the UK’s Most Respected Umbrella Companies and with over 40 years experience as a tax inspector, Roger is also the voice of AllUmbrellaCompaniesAreEqual.