The changes to the off-payroll working rules (IR35) in the private sector has been a lengthy and bumpy one. Regardless of sector resistance, a challenge from the House of Lords, and a delay of a caused by the outbreak of Covid-19, it is looking extremely likely that these changes will proceed on the 6th April 2021.
From this date, it will be the responsibility of medium to large companies within the private sector to identify the employment status of the workers and whether this should be carried out under a contractual basis. This may mean that regular assignments by contractors and freelancers currently under their limited company may be considered inside IR35. If this is the case, the contractor would be then seen as an employee the company and subject to PAYE.
If you fall within the IR35 legislation, the financial implications could be substantial and you may be eligible to pay higher taxes and NI contributions than a regular employee. (responsibility for both Employer and Employee NIC). It also means that you’ll be unable to earn dividends from your company – which are usually subject to less tax (NIC’s are not payable on dividends). To give a brief number-crunching example, an individual with an annual income of around £45k would take home around £8.5k less per year if they fall within IR35 – from that perspective, it’s easy to see why there is resistance.
So here are the options? You may be working on a contract that falls out-with IR35 and you will see no changes. You could be selective within your contract definitions to try and eliminate the possibility of falling outside IR35. (Please bear in mind that the decision is with the client, not yourself). You could become an employee of the client, stats show this doesn’t seem to be a popular choice, however, this route reduces the amount of tax you pay for the same assignment duties.
Another possibility is choosing an umbrella company, which acts as an intermediary between yourself and the client. This would mean you weren’t employed by your own limited company for this particular assignment, but you’d retain your flexibility and independence from the end client and wouldn’t be responsible for paying employers NIC. You would also shed the administration of payroll and contract review, and you’d have access to employee rights such as holiday pay, sickness pay, etc.
As a contractor, what are your thoughts on IR35 reform? Do you have a plan to continue your trade? Let us know.