Following the recent changes to IR35 legislation, we’ve compiled our most frequently asked questions since the changes first came into place and discuss how they could affect workers engaged via Limited Companies in the future.
What is IR35?
As part of the Government’s ongoing battle to tackle tax evasion, HMRC have turned their attention on workers engaged in contracts via their own Limited Company. As of April 2017 HMRC have made changes to IR35, first introduced by then-chancellor Gordon Brown in 2000.
What has changed?
Previously, it was the responsibility of those working under a Limited Company to determine their IR35 status through self-assessment, but this has now changed. The responsibility for completing the assessment now falls with the organisation or agency paying the worker.
If a worker using a Limited Company is found to be ‘caught’ by IR35, their Tax and National Insurance payments will be the responsibility of the entity that pays the contractor; be this direct with a public sector body or via a recruitment agency.
The Government and HMRC have brought about the change as they believe that only 10% of current contractors are accurately assessing IR35 and so it is now down to the employment intermediary, agency or public sector body to assess contractors correctly.
Who will this impact?
HMRC are currently rolling out the new changes across public sector bodies, such as housing associations, the NHS and civil engineering organisations; so this will affect anybody involved in a Public Sector contract under a Limited Company.
How will this affect the industry?
The new changes could have a major impact on the industry as a whole; from public sector organisations, to umbrella providers and recruitment businesses.
- Difficulties with assessments
With the responsibility falling to the public sector body or recruitment business to complete the assessments on behalf of Limited Company workers, they may struggle to make an accurate determination of a contracts IR35 status; as the rules are so complex and require in-depth knowledge of a workers contracts and working practices.
- Reluctance to cooperate
Some public sector bodies are unwilling or unable to make assessments, which may lead to a blanket approach of considering all workers with a Limited Company as caught by IR35. However this has recently been frowned upon, with HMRC encouraging the completion of assessments.
- Shifting Sectors
As some Limited Company workers may not be able to continue their contracts within the Public Sector due to being caught by IR35, they may resort to moving to the Private Sector; which could be a short lived solution if HMRC roll the changes out further.
- Changes in Payment
This may force workers into another method of payment. They could be paid directly via the public sector body or agency (which could lead to increased expenditure for the company), or consider working PAYE through an umbrella company, incurring minor charges for less hassle.
As a recruitment business we have enlisted the help of our trusted umbrella provider, Liquid Friday, to provide guidance for those Limited Company workers who wish to consider a different route to payment.
“Due to these changes, many limited company contractors are moving to an umbrella company PAYE or CIS pay option.
“With Umbrella PAYE, a contractor receives full statutory rights including holiday pay, sick pay, maternity/paternity pay and all relevant insurances are also covered. All deductions for Tax and National Insurance are managed and paid across to HMRC meaning less administration than having a limited company (PSC). Potential savings may also be made through not paying accountancy and insurance fees if moving away from having a limited company.
“If in construction and not under supervision, direction or control, the CIS pay scheme may be suitable, whereby all insurances are covered and taxes payable are managed and paid over to HMRC on the contractors behalf, again meaning less administration.”
Liquid Friday can also offer various payment options to contractors that are considered to be caught by IR35 including deemed payments to their Limited Company, Umbrella PAYE & Construction Industry Scheme payments, all of which we can facilitate seamlessly.
Our consultants have also received training on the legislation changes and are equipped to carry out any Limited Company worker assessments when needed.
Helpful links and contact numbers
Call Liquid Friday’s dedicated help line at 02392 883380
You can find out how changes to IR35 will affect you by visiting https://www.gov.uk/guidance/ir35-find-out-if-it-applies or contact one of our Consultants on 01925 748 320
IR35 guides can be found at https://www.ir35helpline.co.uk/