If you contract through your own limited company you will need to be aware of and considering the potential impact of proposed changes to the off-payroll rules in the private sector, due to come into effect in April 2020.

This month sees the end of the formal consultation period for the proposed changes, the next step will be the publication of the Finance Act in the summer followed by formal announcement in the Autumn Statement.

Be prepared

While April 2020 may seem rather distant, and the changes are not yet confirmed, it is advisable to know how you may be affected and what your options would be, so that you can mitigate the impact on your income. You can read our summary of the proposals here.

We appreciate it’s difficult to plan for something which is currently undefined but thinking and planning ahead is always preferable to leaving it to the last minute when your options may be more limited.

We are frequently out and about talking to recruiters and clients about IR35, and we’ve been through similar changes when they were introduced in the public sector, so we’re well placed to support and advise you. Keep up-to-date via our newsletter and website, or get in touch if you would like to discuss the issue with a member of our team (01244 684700 – lines are open Monday – Friday 8.30am – 5.30pm).

What are the proposed changes?

The main change is that end hirers (the organisation you carry out work for) will become responsible for determining whether you are inside or outside IR35. At the moment, that responsibility rests with you as the contractor (or your intermediary such as Crest Plus or your recruitment agency).

Importantly, this does not mean that the criteria for determining IR35 status is changing. If you are not subject to IR35 now, you won’t be subject to IR35 in April 2020.

The difference is that liability for determining IR35 status would shift from you/your intermediary or agency to the end hirer, as seen in the table below.

Some end hirers may provide individual assessments and be comfortable with responsibility for determining status – in which case, your arrangements should not be impacted.

This was not the case when similar rules were introduced in the public sector, however. It may be that private sector end hirers react in a similar fashion to their public sector counterparts and simply decide that it is too difficult or cumbersome to assess all contractors accurately, or too risky if they get it wrong, and so put all contractors onto PAYE. This could mean you have the option to join the workforce as a regular employee. Or you may be able to continue to operate via your PSC; but if you did so you would be taxed at source via PAYE and you would have to pay tax through your PSC, just like you do at present. Both scenarios would impact your take-home pay, so could force a re-assessment of how you wish to work to sustain your lifestyle.

What can you do?

There are lots of uncertainties but it’s worth considering your options so that you are well prepared in advance of April 2020.

Talk to your end hirer

Although the changes are not confirmed, it’s worth starting the conversation with your end hirer. Ask them what their plans are. Is it their intention to insist that PSC contractors move their payroll and deduct PAYE? Or will they take responsibility for determining your IR35 status and allow you to continue to work via your PSC? It may be that they do not know at this stage, in which case you can ask them when they’re likely to consider the issue and how they will engage you in the process.

Consider your options

• If you are affected by the changes, your options could include:
• Cease being a contractor and join your end hirer as a regular employee.
• Continue to operate via your PSC, paying tax as you do now and via your end hirer’s PAYE. This would mean you would have to pay tax twice, reducing your take-home pay. Do you accept the lower take-home pay or can you renegotiate your contract and ask for a rate increase to mitigate the impact?
• Switch to an Umbrella company. An Umbrella company would operate as your end hirer, removing the ‘risk’ of IR35 assessment from the organisation(s) providing your assignments. You would go onto the PAYE of our Umbrella company, but continue to enjoy the flexibility of being a contractor, plus benefit from employment rights such as sick pay, holiday pay and access to a company pension.

We will keep you informed as the proposed off-payroll working rules become clearer. In the meantime, please do get in touch if you wish to discuss how it may impact you.