IR35 is a piece of tax legislation which looks to determine a genuine business from what is called a ‘disguised employee’. It targets personal service companies (PSCs) – limited company contractors – who may be working more akin to an employee of their end-client rather than providing a genuine contractor service. The legislation seeks to reclaim any additional income tax and National Insurance Contributions (NICs) that they may have paid had the contractor been engaged as an employee. In April 2017, public sector reforms meant that the responsibility for determining the IR35 status of the worker shifted from the contractor to the end-client and the ‘fee-payer’ became liable for unpaid taxes and NICs. These reforms are due to apply to the private sector from April 2021.
Find out more about what these reforms will mean for you.
To be considered ‘inside IR35’ means that for tax purposes the contractor or consultant is treated as an employee of the end-client and therefore subject to PAYE (pay-as-you-earn).
To be considered ‘outside IR35’ means that for tax purposes the contractor or consultant is operating a legitimate business outside of IR35 rules.
There are a number of factors that need to be considered together in order to determine whether a role falls outside IR35 and is compliant with off-payroll working reforms. These are:
If the end-client is able to answer ‘yes’ to most, if not all, the above questions (some of which will have higher weighting than others), it is likely that the role falls outside IR35.
If the assignment is deemed to be inside IR35, then you will need be paid under a PAYE engagement method. The appropriate income tax and NICs will be deducted from your gross pay by the fee-payer who will be responsible for submitting it to HM Revenue and Customs (HMRC) instead of relying on you to typically make a lump sum payment at the end of each tax year. This is known as Pay As You Earn – or PAYE.
Allegis Group payrolls 140,000 PAYE contractors and consultants a week. This means we have considerable experience to draw from and we’re able to offer you the best possible PAYE solution compared with working via an umbrella company.
As an Allegis Group payroll temporary worker, the Agency Worker Regulations 2010 are likely to apply to your assignment. This means you will benefit from certain entitlements that a permanent employee of the end-client receives, such as:
*Subject to you meeting the relevant statutory criteria
When engaging via Allegis Group PAYE you become an Allegis Group PAYE contractor or consultant. This means that we will pay you your net salary on a weekly or monthly basis after deducting all necessary PAYE and NICs in line with HMRC requirements.
Take a look at our offerings and how they compare with those from a typical umbrella company:
|Offering||Allegis Group PAYE||Umbrella Company|
|Free payrolling service|
|Salary sacrifice pension contribution|
|Direct access to new assignments|
|Free certified training|
|Reduced administrative burden|
|Retail savings and discounts|
|Specialised contractor platform|
Chances are you will have heard several myths that might make you think twice about choosing Allegis Group PAYE over going with an umbrella company. We’ve created this myth buster to help you separate fact from fiction.
If you are operating through a limited company, there are instances in which you may be able to enjoy tax relief on the cost of travel and subsistence. In line with IR35, HMRC has changed the rules to dictate that for you to enjoy tax relief on allowable expenses, your contract must pass the supervision, direction and control (SDC) test. In order to determine this, the umbrella company may ask you to complete an assessment. If you are inside IR35, or operating under a PAYE mechanism, HMRC will automatically classify every umbrella contractor under SDC unless you can provide evidence otherwise.
All companies are required to enrol eligible workers into a workplace pension and contribute towards it. A vast majority of umbrella companies will offer a workplace pension through NEST, a Government-backed defined benefit pension scheme.
In addition to the workplace pension, some umbrella companies offer a service whereby pension contributions can be made into a pre-existing personal pension via a salary sacrifice scheme typically for an additional weekly fee. If the umbrella company does not work with your personal pension provider then it may not be a guaranteed offering.
PAYE with Allegis Group will mean that you will be eligible for a workplace pension through Aviva and we are actively looking to launch a salary sacrifice scheme from January 2021.
You could potentially be up to £1,250 per annum better off with Allegis Group PAYE. On average umbrella companies charge a fee of £20-25 per week for running a contractor's payroll -- that's a cost of £1,000-1,250 per annum, whereas Allegis Group's payroll service is completely free!
Allegis Group deducts tax and NICs at source in line with HMRC requirements and the correct payment practices, which in turn means that there should be no difference in PAYE calculations versus an umbrella company operating a compliant tax regime.
At Allegis Group, we have based our calculations on the HMRC guidelines outlined below, but we do understand that this is not always consistent with our estimates provided in the market.
Many umbrella companies advertise ‘continuous employment’ where you will stay employed with the umbrella company contractually, however, you won’t be paid unless you are engaged on an active assignment with a client. It is important to note that the umbrella company cannot help you find your next assignment as they do not offer recruitment services. At Allegis Group a strategic imperative for us is to prioritize repeat assignments and projects for our current workforce!
If the assignment is deemed to be ‘outside’ IR35, this means that you are able to operate as a genuine business. You will have the responsibility of ensuring that you are paying the right amount of income tax and National Insurance from the payment made for your services. You are not subject to PAYE deductions by the contracted fee-payer. We will require a copy of the Status Determination Statement from either yourself or the end-client for the assignment.
Your representative will be in touch to discuss the next steps to get you swiftly started on your assignment or project as a limited company contractor or consultant.
NB: The calculations provided in this estimate are in line with current HMRC guidelines. The Contractor Estimated Take-Home Pay is not a guaranteed take-home amount - it is for illustrative purposes only and as such, does not take into consideration your personal circumstances. Please speak to your accountant or an IR35 specialist for independent tax advice and calculations tailored to you personally.
Under the rules of the legislation there is an obligation on the end-client to ensure it has communicated the result of the determination (the SDS) to the contractor or consultant and the next party in the supply chain (normally the agency or service provider) to ensure that the relevant parties are aware of the result and so the correct tax treatment can be applied.
Failure to pass this information on could result in the end-client becoming liable for any taxes owed to HMRC arising from the assignment (this is referred to as the “provision of debt transfer” within the legislation). The financial implications of providing the IR35 determination without reasonable care, or of not passing the determination result to the relevant parties, are potentially significant. HMRC has the ability to require payment of back-taxes owed over a number of years in addition to any penalties and interest amounts accruing in the event that HMRC believes a determination has been arrived at incorrectly.
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Are you looking for an experienced partner in your supply chain for IR35 readiness? Our Allegis Group PAYE engagement model is an ideal solution for our clients because it presents the least risk under the proposals for end-clients and all other parties in the chain.
We payroll 140,000 PAYE contractors and consultants on a weekly basis and therefore we already have the infrastructure in place to support payrolling significant numbers. Preparations were made prior to the delay in 2020 to ensure that we can help a large volume of PAYE contractors if, as expected, this materialises.