/* */ IR35 – Off-payroll Working in the Private Sector – Frequently Asked Questions
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IR35 Off-payroll Working in the Private Sector

Frequently Asked Questions

What is IR35?

IR35 is essentially a series of tests that determine the tax status of contractors working through limited companies (PSCs). These tests include whether there is financial risk to the worker, the existence of a right of substitution, the presence or otherwise of mutuality of obligation, and whether the role is subject to supervision, direction and control, and are designed to ensure that workers pay the correct amounts of Tax and National Insurance Contributions NICs.

It is currently the responsibility of the worker to determine their IR35 status and to account for tax and NICs to HMRC on this basis.

What are the new rules?

The new rules for the Private Sector are broadly similar to those introduced for the Public Sector in April 2017, meaning that as of 6th April 2020 it will be the end user client, not the contractor, who decides the IR35 status of a given assignment.

This means that if the end user client decides that your role is caught by IR35, your income will be taxed at source, regardless of whether you choose to continue to operate via your PSC, or opt for an alternative payment method.

When do the new rules come into force?

The new rules come into force on 6th April 2020.

Who do the new rules affect?

The new rules apply to anyone providing their services via a limited company/personal service company (PSC).

Does this apply to all Private Sector Clients?

No, there is an exemption for smaller companies. If the end user client meets two or more of the following criteria, it qualifies as a small company and the new rules will not apply, i.e. it will continue to be the contractor, not the end client, who determines the IR35 status of the assignment:

  • a turnover of less than £10.2 million
  • a balance sheet value of no more than £5.1 million
  • no more than 50 employees

Can I still use my limited company?

You can continue to use your limited company, although as outlined above, if your role is deemed to be caught by IR35, all of your income will be treated as employment income and tax and NICs will be payable at the applicable rates. In these circumstances there will be little or no tax benefit to working through a limited company, and as it will cost money to keep it open, it may be worth talking to your accountant to discuss whether you should consider closing it. If the role is determined to be outside of IR35, then you can continue to receive gross payment through your limited company.

What are my payment options after 5th April?

If you choose to cease operating through your limited company after 5th April then your options will be to be paid PAYE by ID Medical, or to provide your services via an umbrella company.

Can you explain the difference between umbrella and PAYE?

An umbrella company is a company that employs a number of temporary agency workers and manages all of their payroll related matters. The benefit of an umbrella company is that you are able to work for a number of different hirers and via a number of different agencies over a period of time, while all of your pay and tax affairs are managed in one place. This provides a great deal of flexibility for the worker. You are still placed in each assignment by your agency; the umbrella just looks after your payments and general tax matters for you. Umbrellas generally charge a fee of between £15 and £25 per week, although if you were to engage with one of the umbrellas on our preferred list, the fee would be around £10-15.

Alternatively you could work directly for ID Medical and be paid PAYE by us. As an ID worker you would enjoy the benefit of daily payroll runs, ensuring that you receive your money within a couple of days of submitting your timesheet.

There is very little difference in take-home pay whether you work via an umbrella or PAYE. We would suggest that you always ask an umbrella to provide you with a worked illustration of what your take home pay would be if you worked with them, compared to PAYE through your agency.

Can I use an umbrella that’s not on your preferred list?

Yes, but we would want to do some checks on their compliance and service levels. Please forward details to Payroll and we will start the process.

It should be noted that whilst some umbrellas offer extremely high levels of take home pay, many of the schemes that yield these abnormal returns are highly dubious and place workers at significant risk of investigation for tax avoidance by HMRC, which may result in a demand for unpaid tax, interest and substantial penalties. If it looks too good to be true, it probably is!

Can I have the details of your umbrella preferred umbrella companies?

This link will take you to the relevant page of our website, where you will find links to each of the individual umbrellas:

What about pension, sick pay and holidays?

With ID Medical’s PAYE model you will, subject to the necessary qualifying criteria, be entitled to join our auto-enrolment pension scheme and receive sick pay and maternity pay. Contributions for our pension scheme are currently set at 3% employer’s contribution and from 5% employee’s contribution.

Your holiday is included within your standard hourly rate and will be shown as a separate line on your payslip. This ensures that your holiday pay is always up to date and that you will not risk losing any pay should you move from one agency to another, or fail to take your full entitlement in any one year.

Umbrella companies generally offer a similar range of statutory benefits and we would encourage you to speak to one or more of our preferred umbrellas in order to find out more.

Will I still need an accountant if I close my limited company?

It may be worthwhile using the services of an accountant to assist with your annual Self-assessment Tax Return in order to ensure that everything has been included in the return; in particular any allowable expenses that will serve to reduce the tax for the year and so may lead to a refund of any overpaid tax.

Will I still be able to offset my professional expenses against tax under the new rules?

There are certain professional expenses that you will continue to be able to offset against tax. We would advise you to speak with your accountant in order to obtain appropriate specialist advice on this.

I am over the state pension age; does that mean I do not have to pay employee’s NICs?

As long as you have reached the state pension age, then there should be no reason for you to pay Employee NI contributions. Whether you are working via PAYE, umbrella, or continue to operate a PSC, Employer contributions would still be payable.

I have used the HMRC on-line tool and it says that I am outside of IR35 so I won’t be affected by the new rules.

The decision as to whether your role is caught by IR35 is now made by your hirer – the end user client for whom you are working. If the hirer deems your role to be caught by IR35 and you believe that the answers you have provided the on-line tool are 100% objective and accurate, then you should appeal your IR35 status with the client, who alone would be able to review your IR35 status.

How does the appeals process work?

If you disagree with the IR35 determination provided by the client you should appeal directly to the client, or contact us and we will do so on your behalf.

The client must respond to your appeal within 45 days, during which time they will continue to pay you according to their original decision. Their response to you must state whether or not their original decision has changed and explain the reasons for this.

Where can I obtain further information?

The following links will take you to relevant pages of the Government website:

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