Recently, we have had an opportunity to speak directly with our contractors about their concerns with the upcoming reforms to IR35 legislation. Here we address 14 of the most frequently asked questions we have heard in our conversations.
There is a lot of conjecture about the upcoming reforms, and rumours are circulating thick and fast. It is important to get your facts straight before weighing up your options. At Allegis Group, we are working closely with IR35 specialists, HMRC experts, and key industry experts to be able to provide our customers with the most relevant and up-to-date information about the reforms as it becomes available.
The following information is intended for general information and guidance only. Anyone requiring specific or detailed legal advice should seek the expertise of an independent lawyer who is an IR35 specialist.
When the IR35 reforms are rolled out to the private sector in April 2020, responsibility for determining whether a role falls inside or outside IR35 will shift from the contractor i.e. you, to the relevant end-client (hiring company).
If your role is determined to be inside IR35, you will be considered an employee for tax purposes and subject to PAYE in the same way permanent employees are. In a PAYE situation, you will be liable for income tax and employee National Insurance Contributions (NIC) which will be higher than the effective tax rates under the Personal Service Company (PSC) structure.
As each individual contractors’ financial situation will vary, we recommend you speak with your accountant or qualified advisor who should be able to run you through different scenarios involving your rate.
There are a number of important factors that a client will consider in order to determine whether a role falls outside IR35. Depending on the nature of the role, their weighting and type will vary but factors commonly considered are: (Please see our glossary of IR35 terms in our recent white paper for a more detailed explanation of some of the below terms.)
If the end-client answers ‘yes’ to most, if not all, the above questions, it is likely that the role falls outside IR35.
Yes, you can continue contracting post April 2020 although depending on whether the role you work in is deemed inside or outside IR35, you may have to change the way you are operating from working as a PSC to contracting as PAYE.
There will still be opportunities to work as a contractor in the market, though at this point we cannot make any predictions about the number and types of opportunities as this depends on our client’s needs and will therefore be dictated by them.
We have strong partnerships with our clients and we will liaise with them throughout the transition to help keep you updated on all developments.
If the end-client determines your role is inside IR35, you will get an official communication indicating the result of the determination. You then have the choice of whether you are willing to engage as a PAYE contractor through us, and if you were to do this your contract would have to be changed to reflect that you are engaging in this way. National Insurance (NI) and employee taxes would change and be deducted from your gross pay.
There may be an option for you to continue to operate as a PSC contractor, but you would still be liable for NI and employee taxes. In this scenario, we recommend you to speak in more detail with a qualified advisor.
The ultimate decision for declaring IR35 status on a job spec is with the client, however we would expect that at least an initial assessment will be made and set out in the job spec. In limited situations, this may be subject to change.
If the contractor operates as a PAYE worker through Allegis, the benefits of the Agency Workers Regulations will apply. In very brief terms, this means that after 12 continuous weeks on assignment at a client, various rights and benefits afforded to permanent employees at the client will also be afforded to the PAYE worker.
Benefits may include Holiday entitlements as well as pension.
Whilst any cases could be subject to different treatment and covering different periods of time, the 2018 budget report by the HM Treasury confirmed that, “The reform is not retrospective – as it has in the public sector HMRC will focus its efforts on ensuring businesses comply with the reform rather than focusing on historic cases...”
…HMRC will not carry out targeted campaigns into previous years when individuals start paying employment taxes under IR35 for the first time following the reform and businesses’ decisions about whether their workers are within the rules will not automatically trigger an enquiry into earlier years”.
IR35 applies to any contractor seeking to operate through their PSC (sometimes referred to as an umbrella company). It is not for an umbrella company to confirm whether a contractor is inside or outside of IR35 – this rests with the end-client. Any claims to the contrary should be scrutinised.
Working under a “services agreement” alone does not automatically exempt a contractor from IR35 as it depends on the facts of each case and whether the role you work in is deemed inside or outside.
No, shaping or changing wording in contract alone does not ensure a contractor will be working outside IR35. Legally, it will be up to the relevant end-client to determine whether a role falls inside or outside IR35. The end-client will make this determination off the back of several factors including work practices and what you do on a day-to-day basis.
If the working practices of your role change, it may be outside IR35.
Your contract and the way you operate will change to working through PAYE contract model from a set cut-off date confirmed by the client. We will work closely with you and the end-client to ensure a smooth transition ahead of time.
No, minimum rates have no correlation with IR35 and do not exempt you or clients from having to comply with this legislation. Payrates are not a factor that will determine where the role is deemed inside or outside IR35.
No, tenure has no correlation with IR35 and does not exempt you or clients from having to comply with this legislation.
No, as it depends on whether the role you work in with each client is deemed inside or outside IR35.
In practice this could mean for example that two days a week you provide your services through your PSC to a client working independently. Another role you do three days a week with another client could fall under IR35 due to the nature and work practices associated and therefore you would be subject to PAYE for this role.
For further information and to find out how we can help you in your individual situation, please contact your Allegis Group representative.