After the implementation of IR35 three years ago in the Public Sector, it is once again becoming the topic of discussion. With the imminent reform coming in on the 6th April to the Private Sector, Oyster are preparing their candidates and clients to ensure a smooth transition come the new financial year.
With this in mind, we spoke with Richard Allen, Senior Sales Manager at Champion Contractors, to give us further insight into IR35 and any advice he had to offer. Richard is a contractor tax specialist with over 17 years’ experience in the recruitment industry whilst Sohan was a key part of the Oyster team when HMRC introduced the Public Sector reforms to IR35 on 6th April 2017.
For those of us who do not know, what is IR35?
In a nutshell, IR35 is a tax law designed to stop contractors or freelancers from providing services through a limited company where the contractor is deemed to be acting as an employee of the end client.
Limited company owners don’t have to pay National Insurance Contributions (NICs) on company dividends, unlike permanent staff who do have to pay income tax and NICs on their entire salary.
As a contractor working through a one-man Limited Company, or Personal Service Company (PSC), you can invoice the client, pay yourself a minimal salary’ and take the rest of the payment as dividends so that you can reduce tax payments and NICs.
From HMRC’s perspective, this takes unfair advantage of tax laws that are favourable to businesses. It is HMRC’s belief that many contractors are simply providing services to a client whom they would otherwise be employed full time and this is the crux of the issue.
IR35 was introduced in 2000 and the government believes that too many limited company owners are operating outside the rules. Reforms were brought in to the public sector back in 2017 and we at Oyster, therefore, have significant experience in how to deal with the upcoming changes in the private sector as so many of our contractors and clients were impacted back in 2017.
I remember it when it was first introduced, and it was confusing, to say the least. How would you make sense of the new IR35 rules as a contractor?
The Off-Payroll IR35 Private Sector Reform is coming. From 6th April 2020, the new rules will be rolled out across the private sector, impacting the way contractors and freelancers engage with companies.
What’s actually changing?
At the moment responsibility lies with the contractor as the Director of the PSC to determine if their contract and working practices are inside or outside IR35. However, from the 6th April 2020, the responsibility moves to the end client. As such your employment status for each assignment will be determined by the end client initially and then confirmed by the agency. The contractor no longer makes the initial IR35 determination.
If your end client deems your role to be Inside IR35, the fee payer (either the end client or the agency) will be responsible for deducting PAYE tax and NIC from your earnings. Contractors do however have 45 days to appeal this decision from when they receive the original determination.
How will it impact contractors?
These changes will impact contractors who provide services via a Personal Service Company to medium and large private sector businesses.
If you’re working through an umbrella company don’t worry. As umbrella companies tax contractors in the same fashion as a full-time worker the umbrella workers are not subject to the IR35 legislation.
What would you advise as a plan of action?
Firstly, please talk to your consultant at Oyster. They will be more knowledgeable than anyone to advise you with regard to the next steps. It may be that the end client will view your role as being outside of IR35 in which case you will be permitted to carry on working via your PSC.
(If deemed inside of IR35) Oyster can introduce you to our Umbrella partner Champion Contractors who can run you a bespoke financial illustration to highlight the benefit of working through an umbrella company. Champion will discuss with you the ability to offset your work expenses against your tax and other benefits that can ensure that your take-home pay is greater than working through us as your agency directly.
Whether it be with Champion or another company, make sure to do your homework into Umbrella Companies, if something is too good to be true, it often is!
Champion can be contacted directly by calling them 0161 703 2549 or via firstname.lastname@example.org.
Here are some of the key benefits of using Champion below:
- Simple Application Process – No Setup fees
- FCSA accredited – Assuring compliance with all relevant legislation
- Personal Secure Online Portal – Your finances at your fingertips
- Excellent Employee Reward Scheme – Potential savings of £1,200 p.a. for a family of 4
- Full & Continuous Employment Status– You can remain with Champion for any future assignments
- Commercial & Personal insurances included – No extra costs
- Consolidated Pay – You can work through more than one agency at a time and be paid through Champion rather than several different agencies.
- Monthly Payment option at a reduced margin
- Tax Saving measures through Salary Sacrifice – ability to pay into a group pension to reduce Tax & NI payments
- Possibility to claim T & S expenses – Subject to SDC assessment and if on assignment for less than 2 years.
- No Tie in period or closure fees.
As an accountancy business approaching their 50th anniversary Champion have also provided thousands of PSC contractors with accountancy services over the years including IR35 determinations. Please speak to Champion if you plan to appeal your IR35 determination as along with their legal partners Weightmans they will be able to provide you with a full IR35 review.