The implementation of IR35 to the Private sector has been jarring, to say the least. Despite outspoken resistance, a challenge from the House of Lords, and a delay of 12 months caused by Covid-19’s, it looks probable that these changes will go ahead on April 6th, 2021.
On that date, it will become the responsibility of medium and large-sized clients in the private sector to determine the employment status of any worker. For contractors and freelancers, this may mean those regular assignments being undertaken by their limited company of PSC be deemed inside IR35. In this situation, a contractor would be viewed as an employee of the company and subject to PAYE.
For contractors, the financial implications surrounding the IR35 changes are substantial. Being a contractor within IR35 means that you’re responsible for both Employer and Employee NIC, this is ontop off all the filing cost for a limited company. It also means that you’ll be unable to earn dividends from your company – which are typically 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 what are the options for contractors?
Well, there are a few cards on the table – firstly let’s remember your contract may fall outside IR35, in which case it’s business as usual.
You could also be very selective of your contract definitions to ensure you have every possible chance of falling outside IR35 (Though final determination falls to the client, not yourself).
You could become a permanent employee of the client. Listening to the masses, we’re finding that this is not a very popular option – but it would mean that you’re not paying as much tax as you would as a contractor fulfilling the same assignment duties.
You could contract overseas, other countries in the EU and further afield remain flexible in their approach to working/assignment conditions.
You could choose to trade via an umbrella company such as ourselves. An umbrella acts as an intermediary between yourself and the client – you wouldn’t be 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? What are you planning on doing if IR35 affect you? Let us know.