For now, contractors should consider whether your role could be seen as being within the scope of IR35 and you should be considered by HMRC as an employee for tax purposes and that you are meeting the regulations. HMRC has developed CEST to assist.
By 6 April 2021 you will receive notification from the end-client about whether your role is inside or outside the IR35 rules. As appropriate the fee payer will be making deductions and payments to HMRC on your behalf.
If you’re not already familiar with the rules and changes, please visit the HMRC website to find out more.
What is the Legislation?
The Off Payroll Working Legislation, commonly known as IR35, is a tax law introduced to tackle disguised employment. IR35 is intended to ensure any individual who is supplying their services through a PSC but would otherwise be regarded as an employee of the end Client (this means the contractor would be deemed ‘inside’ IR35) pays a comparable level of tax to a PAYE individual. If operating inside of IR35, payments received by the PSC would be subject to tax and NI as if the individual were employed by the end Client. The resulting tax liability would fall upon the contractor. One of the main changes is that the responsibility for determining your status will move from yourself to your end Client and the fee-payer will be responsible for making the necessary deductions.
When is this due to take effect?
The legislation applies to contracts entered into, or payments made, on or after 6 April 2021. So, for contracts entered into before 6 April, the legislation will still apply if payments are made on or after 6 April 2021.
Is there a chance that the 2021 deadline will be extended?
There is currently no indication that this will be the case.
Who decides if I am IR35 compliant? The Client, the agency or me?
From April 2021, it will be the Client’s responsibility to determine the IR35 status for all contractors operating via their own PSC’s.
When will I be told if my role has been deemed in scope?
Status determinations must be made by the end Client and each Client will be executing their own IR35 strategy. In the main, we hope to learn IR35 statuses in January 2021 but there will be Clients’ that communicate before and after this date.
What are my options if I am deemed in scope?
If deemed in-scope, contractors have a number of options available. They can continue working through their PSC and ManpowerGroup will make the necessary deduction, the worker could look to engage through one of the ManpowerGroup approved umbrella companies, there may be an opportunity to convert to an Employed Consultant through ManpowerGroup, or there could be the opportunity to convert to a weekly paid PAYE contingent worker (Please note, weekly PAYE is not available to those working through Experis). There are benefits and considerations to each option and the worker will need to decide which is the best option for them.
Is there a definitive way to define IR35 status?
Undertaking an ESI (Employment Status Indicator) test based on both working practice and the way a business is perceived will give an indication of potential tax status. The HMRC have developed a tool called CEST to determine status, but there are other services in the market place that may be of interest.
Should I remain as an LTD worker even though I am now deemed to be “Inside IR35”?
You will need to seek independent advice. Your accountant should be able to assist you, or you can seek guidance from an industry or legal professional.
Your options are:
I already assess my LTD company status as inside IR35 and make the necessary payments – what will change?
You will no longer be required to account for these taxes as it will fall to ManpowerGroup to make the deductions for you.
Will I receive a new contract from 6th April 2021?
The legislation shall result in changes to contract which shall be issued in due course.
If you choose to switch to the Umbrella model, then the umbrella will issue you with a new contract to reflect that change.
How will my daily rate be affected?
If the end Client deems your role to be in-scope, national insurances and taxes will need to be taken into account, which may affect daily rates depending on Client approach. If you believe you are likely to be considered in-scope of IR35, we recommend having a conversation with your accountant to understand in detail what impact this will have.
If I am deemed in scope of IR35, will my daily rate be increased?
Each Client will define their own approach to rates.
How will aspects such as my Company liability insurances be impacted?
You will need to consult with your accountant or seek independent advice as to this impact. Although how tax is applied to your PSC earnings is changing, all other aspects of how your company operates are remaining the same.
Can I continue to pay into my PSC pension pre-tax?
No. ManpowerGroup cannot pay into your PSC pension before it calculates tax on your earnings.
Do I gain employment rights from the end Client due to now being inside IR35?
No. The legislation is clear in that it considers you an employee purely for the purpose of tax. No employment rights are afforded with the status of being inside IR35.
What expenses are allowable?
Expenses that are billable onto the end Client can continue to be claimed as normal through ManpowerGroup. Other company expenses will not be processed by ManpowerGroup and you should seek advice from your accountants how best to process these.
How does it work if I subcontract for two different companies?
Each role will need assessing on their own merit and may be that one role is deemed outside of scope and another role determined ‘in scope’.
How are ManpowerGroup working with end Clients to ensure minimum disruption to the market over the next 12 months?
We are encouraging Clients to put in place project plans with key dates/milestones in advance of the legislation date and will offer contractors ongoing support once Clients pass the status decision down the supply chain.
How can the end Client suddenly pay for holidays, pension contributions, etc. as if on the payroll?
The established PAYE rate for the same role will already cater for any applicable entitlements. Due to employer deductions of Tax, NI and additional associated benefits, your PAYE rate is likely to be lower than your current gross rate.
How can we make our end Clients comfortable assessing contracts as outside IR35? How can we prevent risk averse assessment decisions?
Under the legislation Clients must demonstrate “reasonable care” in making their determination. ManpowerGroup will work in collaboration with Clients and contractors to ensure that reasonable care is demonstrated by the Client when making assessments relating to the IR35 status of all individuals, but ultimately the status determination will be made by the end Client.
Following 6 April 2021, if I am now deemed to fall in-scope of IR35 how will HMRC address retrospective tax?
HMRC have taken the decision that they will only use information resulting from these changes to open a new enquiry into earlier years if there is reason to suspect fraud or criminal behaviour. Further reading can be found here.
What are the typical deductions that might come into effect from 6 April if my assignment is inside IR35?
If you will be engaged as a PSC then there will be deductions of:
Employer NIC: 13.8% (subject to threshold)
Apprenticeship levy: 0.5%
If you are engaged as PAYE then there will be deductions of:
Employer NIC: 13.8% (subject to threshold)
Apprenticeship levy: 0.5%
Holiday Accrual – AWR holiday parity
|Holiday entitlement including 8 Bank Holidays per Annum||Value %