OFF-PAYROLL IR35 REFORMS – HOW MIGHT YOU BE AFFECTED?
Sep 19, 2019
If the reforms to off-payroll (IR35) in the private sector go ahead, many contractors are likely to find themselves unable to work through their own limited companies. If this is the case, it will be necessary to look at other options, such as joining an Umbrella company instead.
The off-payroll reforms are expected to be announced in the Autumn Statement, though a date has not yet been set. You can find out more about the proposed changes here.
It’s important to understand that IR35 itself isn’t changing, it’s the liability for ensuring compliance that’s different. At the moment, contractors and their intermediaries (such as their recruitment agency) are responsible for determining IR35 status. Under the new rules, it’s the responsibility of everyone in the supply chain, including contractors, agencies and end clients.
What this means is that for each new assignment, or for when an assignment changes, the end client must issue what is known as a Status Determination Statement confirming the IR35 status of each assignment. This must be passed to the next party in the chain and finally on to the contractor. Failure to follow the procedure, and ensure correct taxation, would rest with the end engager.
We recommend that contractors and recruiters talk to end engagers as soon as possible to understand how they are likely to respond to this situation. This will allow all concerned to understand their options and respond appropriately.
One of the challenges is that IR35 status determination relies on a number of factors; there isn’t a single, straight-forward way to determine whether a contractor falls inside or outside IR35. So, some contractors who currently deem themselves to be outside IR35 may find that their end engager or recruitment agency considers them to be inside IR35.
What if you’re deemed inside IR35?
If this is the case and you work through your own limited company or PSC, you may be able to continue as you are if it’s acceptable to your end engager, but you would have more tax to pay. There may be personal circumstances which make this an appropriate way to work, but in most instances, this will not be the case.
Another alternative is to become an employee of an Umbrella company, like Crest Plus.
Umbrella employment is a good solution if you are considered to be ‘inside IR35’ because you are classed as an employee rather than a contractor. You pay tax via PAYE, just like regular employees, and are provided with employment benefits such as holiday pay, sick pay and access to a company pension. However, the benefit is that you retain the flexibility to work as a contractor and easily switch between assignments, should you wish to do so, plus you are entitled to full employment rights.
Choosing the best Umbrella company for you
Umbrella companies are sometimes given a bad press, usually because of non-compliant practices among a few ‘bad apples’, but there are many benefits available to contractors who are able to work this way. Find out about the benefits of Umbrella working.
When looking for the best Umbrella company to work with, there are a number of factors you should consider.
- Experience and longevity
Work with a company which is well-established. Crest Plus was founded 20 years ago and has unrivalled experience through the many legislative changes which have come and gone since then. This makes a huge difference when it comes to the design of our service and the advice we can provide to contractors and their recruitment agencies.
- Track record
Work with a company which others can vouch for. We have served hundreds of recruitment agencies and thousands of contractors over the years, and have built a strong track record for high quality, compliant services.
- FCSA accreditation
Choose an Umbrella which can prove it works compliantly, in line with HMRC’s rules. Find out about the many benefits of our FCSA accreditation here.
- Compliant practices
Beware of any Umbrella company which says you can keep 80% or more of your take-home pay. This is simply not possible under UK law and means they are probably using non-compliant loopholes to reduce your tax bill, putting you at risk. Read more about HMRC’s rules for Umbrella working.
- Expert advice and support
Work with specialist contractor accountants who have the knowledge and experience to provide the practical advice and support you need on a day-to-day basis. We appreciate that tax and compliance can be complicated, our aim is to make your working life simpler by removing the headache of working out your pay and paying tax and National Insurance.
If you think you will be affected by the off-payroll reforms and are considering working through an Umbrella company, you may find it helpful to download our Guide to Umbrella contracting. Alternatively, please get in touch with a member of our team who will be pleased to discuss your needs and answer any further questions you may have.