IR35 GOVERNMENT REVIEW
Good Evening, and if we haven’t spoken yet, a very happy new year on this rather sodden January evening.
I appreciate this isn’t a topic that you want to get into so soon after the jollity, however given the murmurings, its vital that we’re prepared.
IR35 GOVERNMENT REVIEW
THURSDAY 9TH JANUARY
As you may have seen in the Press, the Government have begun their review into the proposed IR35 rollout, due to take effect in April 2020. Whilst we can’t be sure of the outcome, word from Treasury officials is that this review will focus on a smooth implementation of the changes, rather than potential delay or a complete halt of the reforms.
Given the timing of the review, and the proximity of the March 11 Budget statement to the proposed roll out date, it’s my view that the boat has sadly sailed somewhat.
By way of a reminder of the proposed changes, essentially the responsibility for determining whether a role is inside or outside of IR35 is being passed to the ‘fee payer’, in most cases the Employer/Intermediary, rather than the Contractor themselves. It is expected, that the risk appetite of the Fee Payer will be considerably smaller than the Contractor, given the level of potential liability they could be facing, resulting in much fewer ‘outside IR35’ roles being available.
From what we’ve seen so far, things are playing out as expected. Temporary roles are plentiful beyond April, but most (but not all) are being deemed ‘Inside IR35’. In a lot of cases, Recruiters are employing the services of Umbrella Companies to manage the payroll function, and make the necessary deductions. Contractors are understandably concerned with the resulting drop in take home pay (compared with their Ltd Co strategy) and are either sitting tight for a last minute reprieve, taking the hit, returning to permanent employment, or retiring altogether.
It is therefore important that we consider the options together.
Internal fixed term contracts
A client may offer this option. It involves becoming an employee of the end client, with all the benefits that come with being a permanent worker, albeit with a fixed end date. Given the costs of having staff on the books competitively and compliantly, this option often works out as the smallest salary amount.
Contracting via an Umbrella Company
A client may offer a contract via an Umbrella Company. There are tons of these companies out there. Essentially, this involves becoming a zero hours worker of a payroll company. You will be entitled to all the statutory benefits of being an employee (pensions, holiday pay etc), however the costs of these benefits, plus the Umbrella Company margin, plus the Employers NI, plus your own income tax and NI liabilities will be deducted from your take home pay.
As mentioned above this is becoming increasingly common. It reduces the admin costs of the end client, and keeps staff numbers low.
As discussed in my earlier circular on IR35, a subsidiary of this Practice is now up and running, inventively named ‘Kingston & Co Umbrella Services’. It’s model is compliant, transparent and of comparatively low cost to the you the Contractor. If the opportunity presents itself, and you would like to discuss this, please let me know.
Outside IR35 – Limited Company
Yay! They are out there, and if you find yourself in a contract deemed outside the Regs, then clearly the advice is to remain as is. Several clients of this Practice are in ‘Outside IR35’ contracts, in the public sector, some of whom working for HMRC themselves, the very body charged with overseeing the regulation.
Inside IR35 - Limited Company
This option remains available to you, and in some cases is perfectly viable (e.g. utilising the gain on the flat rate scheme). However, given your income is taxed at source, many of the benefits of this model have been removed. I would certainly not rush into things, but if you see yourself enjoying the simplicity of life beyond directorship, then you may see little value in having your Company doing nothing for ever.
Dormancy, dissolution or (if solvent) Members Voluntary Liquidation, are all options available to you. These services are offered in house, if you are considering this route at this early stage and would like to discuss, please get in contact.
This is a big topic, and a major change in the flexible labour market. We could speculate for ever. However, it’s important to be prepared.