Jul 17, 2019

Proposed changes to off-payroll (IR35) in the private sector moved a step closer this month with the publication of the draft Finance Bill.

If you are a limited company contractor, or are considering working that way, you will need to be aware of the proposed changes, due to come into effect in April 2020, as they could significantly affect your take-home pay.

Last week the government published the draft Finance Bill which outlined its intentions following a consultation period. It’s expected that there will be a formal announcement in the Autumn Statement with the new rules coming into force next year.

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

While these plans exclude small businesses they are certainly controversial, with many industry commentators predicting difficulties ahead for affected contractors.

The main concern is that end hirers will decide that it is simply too difficult to assess all contractors accurately, or too risky if they get it wrong, and decide to create a blanket rule whereby all contractors are treated as if they fall inside IR35.

If this happens, then contractors who operate through their own limited companies or personal service companies would be treated as if they are employees, with deductions for income tax and National Insurance made at source (PAYE). Contractors would find they pay more tax – in effect, paying tax twice, once via PAYE and again via their own limited company.

This would be a frustrating situation as the criteria for IR35 assessment is not changing, so anyone who is not subject to IR35 now should not be classified as within IR35 when the new rules come into force.

What you can do now

It’s important at present to stay abreast of the changes – we will keep you informed via this newsletter and our company LinkedIn page. The other step you can take is to begin talking to your end hirer and your recruitment agency to understand how they are responding to the proposed changes. This will enable you to consider what options are likely to be available to you, and which would suit you best.

If the end hirer is going to add you to their payroll and deduct PAYE, you will need to determine whether they will continue to work with you if you operate via your limited company. If so, you will find that you have to pay tax via PAYE and via your PSC. Do you accept the resulting lower take-home pay or could you re-negotiate your contract and ask for a higher rate of pay to protect your income level?

Another option is to consider switching to our Umbrella company which means you continue to fulfil your contracts as a flexible worker, but that we operate as your end hirer. This removes the ‘risk’ from the organisations you work for who may be concerned about making the wrong assessment.

We are frequently out and about talking to recruiters and clients about IR35 and the off-payroll rules, 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.  Please get in touch.

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