IR35 Reforms are Coming

Get Ready With Allegis Group

From April 2021, contractors and consultants will no longer be responsible for determining whether they are inside or outside IR35 for tax purposes. Changes to the legislation in the private sector moves the responsibility for making the determination to the end-client. Our team of expert IR35 specialists have put this IR35 hub together to help you navigate the legislative reforms and what they could mean for you.

What is IR35?

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. 

HOW WILL IR35 REFORMS IMPACT OUR CONTRACTORS AND CONSULTANTS?

The IR35 reforms mean that contractors and consultants will no longer be able to determine the IR35 status of their assignments and projects. If the end-client, as the recipient of the services, determines that their assignment is inside IR35 for tax purposes, the fee-payer will be required to deduct income tax and NICs at source. This means that contractors and consultants will now be able to access previously unavailable rights, such as paid annual leave and sick pay.

Am I Likely to be ‘Inside’ or ‘Outside’ IR35?

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:

Will the contractor or consultant have control over where, when and how they perform their work?
Is there no expectation that work will be provided to the PSC and no obligation on the PSC to accept work when it is offered?
Will the contractor or consultant be able to provide a substitute for the services?
Does the financial risk for the required services lie with the contractor or consultant?
Will the contractor or consultant have the right to take on assignments or projects with different end-clients simultaneously?
Will the contractor or consultant have little or no access to staff facilities, staff meetings, staff benefits, and will they not be invited to attend work social events?
Is the contractor or consultant willing to have their assignment or project terminated at any time without reason and without notice?
Will the contractor or consultant be expected to provide his or her own equipment?

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.

Get in touch with our team of IR35 specialists.

If I am Inside IR35 – What is PAYE?

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 PAYE Offerings

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:

  • Pay parity
  • Paid annual leave
  • Pension contribution
  • Statutory sick pay*
  • Statutory maternity, paternity and adoption leave*

*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  chechmark  delete
 Pension scheme  chechmark  delete
 Salary sacrifice pension contribution  chechmark  chechmark
 Direct access to new assignments  chechmark  delete
 Insurance  chechmark  chechmark
 Free certified training  chechmark  delete
 Reduced administrative burden  chechmark  delete
 Retail savings and discounts  chechmark  delete
 Specialised contractor platform  chechmark  delete
 Compliance  chechmark  delete

Get in touch with our team of IR35 specialists.

Our PAYE Myth Buster

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.

  • If you are under 65 and earn less than £100,000 a year, your tax code will likely be 1250L and you will be eligible for the basic tax-free Personal Allowance of £12,500.
  • The guidelines state you’ll be taxed £1 of your Personal Allowance for every £2 you earn over £100,000. It is important to note that if your income has reached £125,000, your whole income will be subject to the higher rate of Income Tax meaning there is no basic tax-free allowance.

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!

Contact us to find out why you should work with us instead of an umbrella company.

I am Outside IR35 – What Happens Next?

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.

Calculate Your Take-Home Pay

Enter your PAYE rate below to find out what your estimated take-home pay will be if you choose to go PAYE with Allegis Group.
I earn (£)

Every

Results


If you’ve been provided a calculation by an umbrella company which appears to be a better result, please contact us to discuss. It might be the case that the umbrella company has applied different assumptions to the ones described below. 

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.

 
These calculations are based on the following assumptions:

  • We have not included earnings from any other sources this tax year.
  • Qualifying earnings for pension is based on weekly earnings between £120 and £967 (annual thresholds from 2021/2022 tax year)
  • Calculations are based on working 52 weeks in a year and we have applied weekly tax allowances.
  • AGperks and Skillsoft savings is an estimate based on average family spend per week of £585.60.
  • This is based on rest of the UK tax allowances and uses 2021/2022 tax rates. Tax rates and take-home pay may change post April 2022 when HMRC announces amended tax rates for the new tax year.
  • Holiday pay is paid using a calculation of daily earnings from a 52 week average when using the accrued holiday pay method.
  • If your income is over £100,000, your personal allowance of £12,570 may be reduced in line with HMRC guidelines which is reflected in the above calculations.

HOW WILL THE REFORMS IMPACT THE END-CLIENT?

Currently, contractors and consultants are responsible for determining the IR35 status of their assignment. Updates to the payroll legislation will mean that from April 2021, private sector end-clients caught by the reforms will be responsible for determining whether or not an assignment falls inside or outside IR35. The fee-payer (end-client agency), will be responsible for ensuring that the correct income tax and NICs are paid to HM Revenue and Customs (HMRC) where an inside IR35 determination is given.

 

What Does it Mean for You and Your Business?

We believe one of the main impacts of this reform will be a significant reduction in the number of contractors and consultants considered to be operating outside of IR35. This may result in one of the following scenarios:  
  • A substantial increase in numbers of contractors and consultants operating under a Personal Service Company (PSC) will switch to PAYE contractors and consultants going forward.
  • A potential increase in the demand for permanent staff by end-clients which could be costly and result in extra employment-related liabilities.
  • More end-clients opting for outcome-based services where IR35 determination and service delivery risk are taken on by a third-party service provider, not the end-client.
  • Contractors and consultants might wish to retain their PSC regardless of whether their contract is considered to be inside IR35 or not.

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.

How We Can Help

Managed and Outsourced Services

We also offer a spectrum of outsourced services utilising specialist in-house delivery managers, as well as internal and external subject matter expertise to ensure fast and effective delivery. We use best practices, methodologies and tools to execute on the successful delivery of client outcomes. Services range from Project Led Managed Services to full outsourcing with an ownership of risk and project outcomes, including offshore solutions.

TEKsystems

We provide IT capacity management services and IT professional services through our Global Services division. Our Global Services division is comprised of global solution centres, regional and national delivery managers, regional solution executives and national account directors focused on providing IT capacity management and professional services to our clients. Our service catalogue includes managed service projects and outsourced and advisory services across technology towers that cover Applications, Infrastructure, DevOps, Enterprise Technologies, Service Support and Technology Deployment. It’s supported by our global network of delivery centres and subject matter experts.

Aston Carter

Aston Carter Consulting has extensive experience operating and consulting on risk and regulation, compliance, and change and transformation programmes. We provide project based and outsourced services through tailored solutions and rapidly mobilised, high-performing teams. Aston Carter Consulting is a unique alternative to traditional Tier 1 consultancy services, we provide our clients the opportunity to engage expert consultants in a flexible and agile way.

Temporary Staffing

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.

Permanent Staffing

Our existing permanent staffing teams have a significant presence in both financial services and commerce and industry markets partnering with a range of clients across the UK to support their resource requirements including resource augmentation services. We are experienced in dealing with large volume recruitment campaigns, niche one-off hires and retained search.

Find out more about how we can help you business.

The Benefits of Engaging Allegis Group PAYE Contractors and Consultants

Typically, recruitment agencies use umbrella company arrangements to pay the contractors they supply. This is because many companies and agencies do not have the infrastructure to payroll contractors themselves. Our global reach and extensive experience in payrolling contractors and consultants for many years has meant we have been able to invest in building out a robust internal payroll infrastructure, rather than relying on the services of umbrella companies. Some of the benefits we have already seen are as follows:

Reduced supply chain

Our direct PAYE offering via Allegis Group means fewer parties in the contractual chain enabling better control of the supply-chain and associated risks for clients.

Reduced risk

Over the years, we have seen that our clients want to work with reputable agencies and want to distance themselves from payroll companies who historically have not always been 100% compliant with regulations. By operating our payroll in-house this means the risk of inappropriate payment practises is significantly reduced.

Enhanced contractor and consultant experience

By maintaining direct contact with our contractors and consultants, we are able to offer a superior contractor and consultant experience. Additionally, our extensive PAYE offerings include access to retail discounts, a certified learning platform, a specialised platform and dedicated points of contact.

 

Disclaimer:
The information on this page is intended for general information and guidance only. We recommend that you obtain specific and detailed independent advice from a specialist lawyer and tax adviser who has expertise in IR35.

IR35 NEWS AND RESOURCES

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