What is IR35?
- IR35 is a Tax Legislation which changes have now been postponed until April 2021 from 2020, these changes already apply to the public sector.
What is happening in April?
- From April 2021 it is no longer the contractor’s responsibility to determine if they are in or out of scope.
- The aim of this change is to make sure all ‘disguised employees’ are paying the correct tax.
- A disguised employee is a contractor that works via their own Ltd company however they would be deemed an employee because of the way the company treats and interacts with them.
What do we all need to do?
- The client must determine if a contract and subsequently, the worker, is in or out of scope of IR35 and they must advise the rest of the supply chain.
- GOV.UK have released this tool to help clients determine in and out of scope: Click Here
- If the worker is determined out of scope, there is no action required – it is a true consultant arrangement
- If the worker is in scope then they will need to start paying the correct PAYE and NI accordingly, but the fee payer is responsible for deducting this.
Who is the fee payer?
- Whoever pays the contractor. It could be the recruitment agency or the client themselves or an umbrella company.
How would you tell the different between in and out of scope?
Out of Scope Contractor:
- Set own hours
- Use their own equipment
- Have flexibility around location
- Can substitute an equally qualified contractor if needed – through their limited company
- Are not subject to Supervision, Direction or Control in their day to day duties
In Scope Contractors:
- Set hours directed by company
- Have a fixed location
- Use of the company’s equipment
- Cannot substitute anyone in their place
- Are subject to Supervision, Direction & Control in how they carry out their duties
How can Clearwater Support you as their Candidate?
- Clearwater People Solutions, as the fee payer will have to start ensuring all PAYE and NI is correctly deducted if the contractor is deemed in scope.
- We can advise on the new tax obligations the contractor may face come April
- We can help assess current work force and liabilities
- Our contracts are already IR35 friendly and HMRC wont be back dating any reviews into contracts before April 2020.
- As the contractor could be paying more PAYE tax as an in scope contractor, it may be easier for them to go through an umbrella, especially if they will be contracting at different companies. (Meaning employment benefits are all in one place rather than switching every 6 months when they are in a new role.)
- If you already work with an umbrella company, you will already be paying the correct amount of tax for an In Scope IR35 role.
- Keeping a limited company is still possible, but as the fee payer is still liable for deducting your tax, PAYE and all NI will be deducted before the limited company is paid.
- Outside IR35 roles will be in demand so contractors will need to consider their in scope options, to be ready to accept an in scope role.
If you have any more questions on how Clearwater can support you through these changes, please call the office on 01293 217444, speak to Emily and she will arrange a call back with your Account Consultant.
Please note you will need to seek your own legal advice; the purpose of this document is to raise awareness of IR35 and is not intended to advise any decision you or your company may make. To read further: Click Here