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IR35

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Simplified IR35 Guidance for Workers – SRS Q&A

*This is not financial advice and Servoca Resourcing Solutions are not financial advisors. Please seek independent financial advice.

What is IR35?

The IR35 Rules were introduced in April 2000, they were changed in 2017 for the public sector (NHS, local councils, central government etc.) and HMRC have decided to change the rules for the private sector. The changes will apply from 6th April 2021 if you work through a Limited Company rather than on a pay-as-you-earn (PAYE) or umbrella company payroll.

This change was originally going to be introduced on 6th April 2020 but was postponed due to the Coronavirus pandemic.

IR35 deals with workers that the government considers “disguised employees” i.e. workers who HMRC feel would be taxed as PAYE employees if the Limited Company did not exist. As a result, the individual’s pay should be subject to PAYE tax and National Insurance Contributions (NICs), and Employers’ National Insurance Contributions (ENIC).

Who will the IR35 changes affect?

HMRC’s changes will affect all Limited Company (Personal Service Company) workers in the UK, regardless of sector.

Who decides if I am within IR35?

The end client, must make a Status Determination on whether the work required on each shift should be “Inside IR35” or “Outside IR35”. In the NPS and Police Forces we worked with, 99% of our workers were judged to be “Inside IR35”; we expect the same to be the case in the private sector. This means that instead of being paid gross, as you would have been as a Limited Company worker, your tax and national insurance will now be deducted by your agency at source.

What happens if I disagree with the client’s IR35 decision?

There will be a way to challenge a decision, which is likely to be clarified by the government later this year. Before the intended 2020 introduction, some of our clients had indicated that they would look for PAYE only workers but the majority who responded were happy to continue working with umbrella company contractors as they do currently.

Taking into account that the majority of our public sector workers were judged as “Inside IR35”, it is worth bearing in mind that clients could be liable for a big tax bill if they get it wrong i.e. paying back tax for every worker, on every shift, in every home if they get it wrong or ignore the legislation – this will soon add up to being a considerable amount. Within the public sector, clients were given 45 days to consider an IR35 appeal, which is a long time for you to be waiting for work or agreed pay.

What are my options if I am currently a Limited Company worker?

The two main options available are to work on a PAYE basis or via an approved umbrella company.

Working via an umbrella company would mean that you would continue to receive the gross rates of pay that you currently receive through your limited company. However the umbrella company would be responsible for making all relevant tax and National Insurance deductions and making payments to HMRC on your behalf. In addition, some umbrella service providers will offer a variety of perks and benefits for contractors working through them. Umbrella service providers charge you for their services and this will be taken into account in your take home pay figure. SRS operate an extensive approved list of FCSA accredited umbrella providers to ensure compliance with all HMRC legislation, that they are financially robust and that they have experience in working with civil and criminal justice contractors.

Pay-as-you-earn (PAYE) means less administration than managing your Limited Company. If you switch to PAYE your tax and national insurance deductions will be deducted at source, you may not need to pay an accountant, your holiday pay and optional pension scheme will be automatically calculated and added. Your PAYE pay rate may appear lower than your Limited Company rates, however bear in mind that your Ltd rates were gross and you and your accountant then had to deduct the relevant taxes, national insurance, company costs and accountancy fees.

In some instances, some clients may allow you to continue to work through your limited company. However this tends not to be an attractive option as your rate would be reduced to a “deemed rate” which in effect is the equivalent of the equable PAYE rate plus holiday allowance and as per PAYE, your tax and national insurance deductions will be made at source. Similarly applicable company taxes and national insurance deductions are made by the agency and paid to HMRC rather than by you or your accountant.

What should I do now?

The IR35 regulations are set to be implemented on 6th April 2021, which means the last week you can work under the current private sector rules will be week commencing 22nd March 2021 as your timesheets must be processed before 31st March or any payments after this date will be subject to significant tax deductions, regardless of when the work was undertaken.

 

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