Contractors' Questions: Is PAYE or 'Ltd' best for public contracts?

Contractor’s Question: Despite it being asked a lot, I’m still unsure if it’s best to ‘go PAYE’ for a public sector contract or just retain my PSC and use that? This has been asked before in wake of the off-payroll rules, I know, but I’d appreciate a balanced answer that’s not full of numbers!

Expert’s Answer:  Retaining your PSC provides flexibility. In fact, since IR35 is assessed on a contract-by-contract basis, you may find that your next contract is outside IR35 and more tax-planning opportunities will therefore present themselves.

But let’s park the take-home pay angle as you’re not after figures! If running a company is no longer for you, there is the option to join a PAYE umbrella company or the end-user’s / agency’s payroll.

In all three PAYE scenarios, you would become an employee and all your earnings will be subject to tax at source. You will no longer be your own boss, as you are now -- running your own business with all the upsides – and downsides -- that can entail.

The advantage of joining the payroll is peace of mind that taxes are paid throughout the year, and that you have employment rights and/or protections, such as statutory payments and holiday pay, assuming these appeal to you.

And as its supporters often point out, the umbrella employment model provides continual employment, as it is transferable to numerous contracts and end-clients. However, an end client or agency payroll option will only suffice for the period of the particular contract with that particular agency or end-user. Good luck on whichever of the options you decide is suitable for you!

The expert was Dan Moss, a director at contractor accounting specialists Orange Genie.