Clearwater

Key Legislation for Contractors

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.

  • 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.

Clients

What is happening in April?

  • From April 2021 it is now the clients’ responsibility and liability to determine if a contract is in or out of scope of IR35.

  • 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 or umbrella 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 the client 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 difference 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

What are the risks if the Client deems all their contractors in scope?

  • Contractors will end up paying more tax when they might not need to

  • Contractors may hand their notice in – This could cause significant implications to the client’s project

  • The contractor may appeal the client’s decision

  • Contractors may demand a fee increase to cover their new tax obligations

  • Every role won’t necessarily be caught by these changes and “out of scope” roles will be highly desirable (Clearwater will be able to advise how best to advertise and fill these roles).

How can Clearwater support you as their client?

  • Clearwater People Solutions can payroll contractors, ensuring all PAYE and NI is correctly deducted.

  • We can advise on the new tax obligations contractors may face come April

  • We can help assess current work force and liabilities

  • We are currently assessing possible 3rd

    parties to assist with a more reliable decision tool

  • The client can protect themselves by implementing Clearwater into their supply chain, putting Clearwater between the client and the contractor means we become the “Fee payer” which will remove part of the client’s liability.

  • Our contracts are already IR35 friendly and HMRC won’t be back dating any reviews into contracts before April 2020.

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

Contractors

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.

Remember!

  • 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, please call the office on 01293 217444 or email info@clearwaterps.com

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

Agency Workers Regulations (AWR)

AWR is a piece of European Legislation. It gives agency workers the right to the same basic working and employment conditions they would receive if employed directly by the hirer, limited to pay and working conditions.

All contractors are entitled to Day One rights as soon as they start work which includes:

  • To be informed by the hirer of internal job opportunities

  • Access to collective facilities and amenities such as work childcare, canteen facilities, parking and transport services

If a worker is on the same assignment for 12 weeks without breaks they are entitled to the same employment terms and conditions as comparable employees working within the same organisation including:

  • Equal pay

  • Working hours

  • Annual holiday & statutory sick pay

  • Any bonus schemes

  • Rest break entitlements

  • Any other benefits that comparable employees receive

AWR applies to both full and part-time workers; please seek advice on whether you are considered in or out of scope.

Conduct Regs Opting Out

By submitting the Opt-Out statement before you start your new assignment, you may give the Agency notice to Opt Out of the Regulations, by which acknowledging that you have fully read and understood the Conduct of Employment Agencies and Employment Businesses Regulations 2003.

What actually are the Regulations?

The Regulations came into force on 6th April 2004 and govern the conduct of the private recruitment industry and establish a framework of minimum standards that clients, work-seekers and hirers are entitled to expect. They control how recruitment companies such as ourselves conduct their business and how we operate with “temps” and contractors. After some “push-back” from various interest groups, the Government adopted the view that limited company contractors are able to “opt out” of these Regulations.

What does “Opting Out” mean to me?

If you opt out, then the Regulations will not apply to the dealings between you and us. As we cannot possibly explain all of the regulations to you, if you are interested here is a link to the full document. In the meantime, we thought it would be helpful to cover some pros and cons so you know what you’re agreeing to:

Pros – The Advantages of Opting Out

• No increase in administration or forms to complete which could result in increased margins/costs to you

• Avoid potential delays in starting your assignments

• Less statutory restriction on your ability to substitute or sub-contract

• Avoid any implication that you are under the client’s control at all times (although you may agree to be)

• It will assist in demonstrating that you operate outside IR35

• Easier to show you are in business on your own account

• It increases your marketability to clients and recruiters looking to reduce administration and place candidates quickly

• Only one negotiation of contract terms in each case (rather than at the outset and at point of assignment)

• Less requirements on you to provide information and confirmations

• More attractive to umbrellas and limited companies as they avoid increased statutory requirements

Cons – The Disadvantages of Opting Out

• No additional protection regarding potentially onerous contract terms (existing statutory protection remains)

• No statutory entitlement to information regarding health and safety (although our Terms deal with this)

• No minimal protection when required to work away from home

• No added protection regarding confidentiality (although Data Protection Act still applies)

Other Considerations

Aside from these two key pieces of legislation, you will also need to consider other rules and regulations relevant to anyone. These include VAT and relevant insurance plans.

Before venturing into the world as a contractor you should consult with a specialist in regard to all these issues.

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