Post-Election Summary – An IR35 Review In Name Only?

Over the course of the election campaign, almost every party has had their say on how IR35 should be handled going forward. With the election concluded, we’re now able to focus our full attention on all legislation changes including the upcoming IR35 review. Although, there are still a number of possibilities about how an IR35 review could manifest itself.

With the Conservatives now in full control, businesses and contractors have a better grasp of what to expect in 2020.

Of course, with Brexit lingering and future trade agreements to be arranged, it begs the question of what form the review will take and when it will arrive. Here, we answer that question as best we can.

Review now

The Conservatives have long been in favour of an IR35 legislation review. Of course, now that the election is over, such financial policies will likely take front and centre stage of all economic discussion.

However, despite what most contractors and clients who engaged in their services might prefer, the government may be unable to devote the energy towards it immediately.

Even if the current Tory government hope to only make mild adjustments, it is likely they would be required to run the legislation through a hand-selected committee – or even Parliament – first.

Therefore, it remains to be seen whether the review will be a half-hearted assessment (with little to no scrutiny) or an in-depth examination of the impact this will have on the contracting world.

Review later

The alternative scenario is that the Conservative Party decide to bench the legislation until it can be reviewed in October 2020. If this is the case, there will be a period of uncertainty whereby all effected parties will need to adhere to legislation (as it stands) and engage contractors as normal – despite knowing that it could change.

Already, agencies and businesses who rely on contractors are having to factor the proposed changes into their contracts. But it’s uncertain whether the new government will expect this to continue.

As frustrating as that may sound, it makes sense. Sajid Javid has publicly stated that extra finances will need to be put aside in order to prepare for a no deal exit. If that is true, then the prospect of reviewing IR35 policies may seem fairly innocuous in comparison. Plus, this would allow for a more thorough discussion by a committee and Parliament.

Labour

Should Jeremy Corbyn have found himself at Number 10, the future of IR35 would have been no more certain. Not satisfied with rejecting the proposed IR35 legislation, Corbyn had every intention of disassembling umbrella companies as a whole. Why? Because he believed they don’t pay the correct amount of tax and NI. They do.

In fact, one reason contractors choose umbrella companies in the first place is so they can ensure that they are working entirely within the realms of HMRC best practice. By removing this option, he would effectively be limiting the choices of contractors across the UK – and put them at the mercy of ‘other’ pay options that do not afford full employment rights and benefits.

Prepare regardless with Workr

Whatever happens going forward, one thing is almost certain – IR35 in one form or another will take effect in 2020. The Conservatives have long been in favour of this reform – and it’s unlikely they’ll reverse their decision.

That’s why Workr are committing ourselves, between now and April, to ensure all those effected won’t suffer the ire of HMRC. We’ll be updating our IR35 Hub regularly with the latest news, insights and advice so you can prepare for the incoming changes.

If you’d be interested in having your situation assessed by our experts, get in touch. Our team will even offer alternatives should your process fall on the wrong side of the taxman.

Umbrella Companies – How Do They Work And Who Do They Benefit?

As the Off Payroll Private Sector IR35 reform looms, many individuals, agencies and businesses are seeking alternative pay options to minimise risk and disruption post April 2020.

Umbrella companies are a popular option. By absorbing responsibilities traditionally left in the hands of the contractor, agency or end client, they’re a straightforward way to meet the proposed changes and maintain business as usual.

Unfamiliar with this way of working? Think it could be an option for you? We’ve provided a breakdown of what an umbrella company does and who they benefit.

What is an umbrella company?

Umbrella companies are payroll service providers that calculate and deduct the correct levels of PAYE and NIC contributions in line with HMRC rules on behalf of contractors and their clients.

An umbrella company employs the contractor freelancer, providing them with full statutory employment rights and benefits – in the same way as a full-time employee would have. The umbrella provider agrees and signs a Contract for Services with the agency; the contractor then signs a Contract of Employment with the umbrella provider.

The way they work is fairly simple. Contractors file a timesheet to their umbrella company, which in turn invoices the agency or business. Once paid, the umbrella business handles all payroll responsibilities and provides a salary to the contractor – taking deductions at source and paying these directly to HMRC. There is opportunity to claim tax relief on genuine business expenses via a year end Self Assessment; your umbrella provider (employer) can help with this.

How is that different from a PSC?

Contractors operating through PSCs invoice the agency or end client directly. At the moment they are obliged by law (Intermediaries Legislation 2000) to determine their employment status, pay the appropriate tax and NICs (if any), and are held liable if HMRC deems them to be employees in all but name.

From 6th April 2020, businesses will have to determine whether they are inside or outside IR35, and the agency will need to double-check it’s right, or chance footing the bill should HMRC challenge the determination.

Umbrella companies, on the other hand, don’t have this problem. There’s no grey areas – contractors are employed by the umbrella provider, who handles PAYE and dealings with HMRC, taking the responsibility and liability away from all parties.

What are the benefits of umbrella companies?

In short, it’s hassle-free. No-one has to worry about getting on the wrong side of the taxman, everyone is clear where they stand, and the umbrella company does all the legwork so you don’t have to.

For agencies and businesses, it’s a convenient way to achieve compliance and peace of mind. But umbrella companies are more than a box ticking exercise; partner with the right provider, and you stand to gain a competitive edge post April 2020.

As modern and compliant umbrella companies offer contractors benefits usually reserved for employees, such as access to a workplace pension, sick pay or employee wellbeing benefits, businesses and agencies can use these as a way to attract and retain top talent.

These benefits, along with employment rights, support and advice and greater job security, make umbrella companies increasingly attractive to contractors. By working together to prepare for 6th April 2020, and beyond, all parties can achieve a satisfactory outcome.

How we can help

If you’re looking at alternative pay options ahead of the incoming Off Payroll Reform, Workr are here to help. With expert knowledge and a range of comprehensive resources, we can guide you through the process, or support you through our own umbrella service.

Our dedicated Workr Compliance team protect businesses, agencies and contractors from the negative impact of IR35 changes, as well as other pitfalls that can harm your earning potential. Worried about how the new rules will impact you? Contact our team on IR35support@workrgroup.com  or fill in the form below.

Sources
https://www.sjdaccountancy.com/resources/umbrella-company/using-an-umbrella-company/
https://www.itcontracting.com/umbrella-companies-a-complete-guide/
https://www.contracteye.co.uk/umbrella_company_advantages.shtml

Is This The End For Personal Service Companies?

Personal Service Companies (PSC) or One Man Limited Companies have long faced the ire of HMRC. The Off Payroll Private Sector IR35 Reform is yet another example of this, as contractors operating through PSCs will no longer determine their employment status from 6th April 2020.

While the proposed changes won’t stop contractors from providing services under a PSC, it may deter risk-averse businesses or agencies from engaging them. Even if it doesn’t, the shift in responsibility and liability means the chances of being caught within IR35 are much higher.

In this guide we explore what the future looks like for PSCs, and the alternative options available to contractors.

What’s threatening PSCs?

The Off Payroll Private Sector IR35 Reform is designed to ensure that any PSCs operating inside IR35 don’t fly under the radar. Contractor freelancers that operate as an employee in all but name, according to HMRC, should have the appropriate tax and NICs deducted at source through PAYE.

Currently, contractors determine their own status and tax / NICs (if any), so they are liable if HMRC challenges their employment status. From the 6th April 2020 though, it will be the engager (end client) and fee payer (agency or end client) who determines whether a contract is inside or outside IR35.

By shifting the responsibility and liability, PSCs come under threat. Unfortunately, for contractors, there are some clients who will prioritise compliance above all else and therefore place all contracts inside IR35, with obvious implications for take-home pay.

Not only is deeming a contract ‘inside’ the less risky option for a business or agency; some may avoid engaging them altogether in light of the incoming changes, affecting contractors’ prospects and earning potential.

How can contractor freelancers adapt?

A large number of contractors will seek an uplift in rates from the end client or agency in order to compensate for the potential increase in tax and NICs. This will lessen the damage of hiring managers classing their contract to be inside IR35, but in turn make their services less viable to the end client.

It therefore works in the interests of both parties to work towards maintaining and proving genuine contractor status post 6th April 2020. Companies that accurately determine contracts on a case by case basis will avoid the financial uplift and retain talent. However, even in these circumstances there’s still an element of risk management at play.

Agencies can help manage this relationship, as well as taking some of the risk away from the end client. Provided the contract doesn’t fall inside IR35, everyone can achieve compliance while maintaining business as usual.

Is there an alternative?

Yes, in the form of umbrella companies.

These payroll providers bridge the relationship between contractors and their end clients by becoming an employer of the former, and absorbing the responsibilities of the latter.

Contractors and businesses who choose this alternative do so for the convenience, security and peace of mind it provides. No more invoices or dealing with HMRC – everything is handled by the umbrella company.

When the other main option main option is to move onto PAYE, it’s no wonder that all parties are keen to explore the alternatives ahead of the incoming changes in April 2020.

How Workr can help

There’s no point burying your head in the sand with Off Payroll Reform. The proposed legislation will require those inside IR35 to change – it’s down to PSCs and businesses themselves to decide what the change will be.

Workr Compliance exists to walk you through your options. It’s never been so important to have a comprehensive understanding of your situation and responsibilities. So, if you’re looking for answers ahead of the incoming Off Payroll Reform, turn to us. Equipped with expert knowledge, a wealth of insights and an umbrella service of our own, we’re sure to support you in your transition.

Speak to our team today by emailing IR35support@workrgroup.com.

Alternative Pay Options For Private Sector Contracting Post April 2020

Personal Service Companies (PSCs) have long been a popular choice for contractors working in the private sector. However, with the Off Payroll Private Sector IR35 Reform looming, other methods of contracting are increasingly being sought after.

For some individuals, and the agencies or businesses that engage them, the only model they’ve ever known is operating via a PSC. Now they’re facing a decision. Adapt or risk disruption as a result of an incorrect decision regarding employment status.

Want to survive and thrive? We explore the alternative options for private sector contracting post April 2020 and how each will keep you on the right side of the taxman.

What’s happening with PSCs?

Providing services through a PSC gives responsibility to the contractor to consider their IR35 status and provide evidence of their status for each project they are working on. It is their duty to pay the appropriate level of tax and National Insurance Contributions NICs (if any) and ‘on their heads be it’ should HMRC perceive them to be a ‘disguised employee for tax purposes’ and avoiding paying the correct amount of tax.

From 6th April 2020, it will be the responsibility of the engager (end client) to decide the employment status of any contractors they use, and the fee payer (agency or end client) to confirm the status and pay any associated costs, including penalties in the event of an incorrect . Under the proposed legislation, if HMRC cannot recover unpaid tax from the fee payer, the intention is to then focus on the next ‘stakeholder’ in the supply chain – to a point where HMRC will pursue all stakeholders until the unpaid tax, interest and fines are recovered. This is different to existing ‘liability’, which currently lies with the director of the PSC.

The legislation will not stop contractors from operating through a PSC, although businesses may be less inclined to utilise them a result of the risk.

What’s more, if they are deemed to be an employee in all but name, they will be caught insight IR35 and therefore taxed as a permanent employee via PAYE.

Alternative pay options

1. PAYE

A little bit of knowledge does a lot of damage. Businesses aware of their new role, but uncertain of what’s required of them, are likely to falsely classify their contractors. They may choose to bring them all under PAYE and avoid the responsibility of judging each contract on a case by case basis.

Under PAYE, contractors are engaged (in the main) as a ‘worker’ under a contract for services and, will have income tax and NIC contributions deducted from their earnings at source. It’s a safe move for businesses as far as compliance is concerned, but costly, as both parties will be forced to pay more to HMRC. For their contractor freelancers, it may be a price too steep to pay.

Those that don’t look elsewhere for work are likely to hike up their rates in order to absorb their new tax and NIC contributions. This, in turn, will affect both the business’ willingness to engage flexible workers, and contractors’ ability to find suitably paid opportunities.

2. Umbrella companies

Umbrella companies are a popular alternative. In essence, an umbrella company is a payroll service provider that employs the contractor using a genuine Contract of Employment. For businesses and agencies, they’re a hassle-free solution, removing the new responsibilities, and therefore risk, coming from 6th April 2020.

In this option, the umbrella provider agrees and signs a Contract for Services with the agency; the contractor signs a Contract of Employment with the umbrella provider (its employer). Workers then submit the hours worked and their employer raises the invoice with the agency (sometimes the end client) and pay is received. The employer will make the necessary tax and NIC calculations, making the deductions at source. The employee then receives their pay, along with a payslip.

This presents all parties a hassle-free alternative post-April 2020. Contractors gain access to employee benefits, while their clients have an easy way to engage workers and remain compliant. The  list goes on, but umbrella isn’t the only option…

3. PEOs

A professional employment organisation (PEO) is an employee management service. Like an umbrella company, PEOs allow businesses to completely outsource employment responsibility, although to a much higher degree. Despite primarily focusing on HR functionality, a PEO will handle payroll and administration.

PEOs are expected to guarantee all employees (lapsed contractors) enjoy their statutory rights in between assignments, find assignments in the first place, and access benefits like flexible holiday pay and minimum working hours.

Ready to explore your options?

It can be difficult to weigh up the options when there are so many factors to consider. That’s why Workr are dedicated to helping you find the best solution for your situation, as well as taking care of your pay requirements once you’ve chosen the way forward.

We’ve combined our expertise and comprehensive resources to create an IR35 Hub that provides answers to your questions. But if you’re seeking personal support, please get in touch with the team today on IR35support@workrgroup.com.