As you may be aware, new legislation is coming into effect on 6th April 2020 relating to IR35 and private sector contractors. If you currently work with one of Quality Care Cover’s private sector clients and are paid directly into your limited company, then please take note of the below further information on the legislation and the impact it may have on your payments moving forward. Please call into the office and speak with the payroll department to discuss this in more detail and confirm a mode of payment going forward.
What is IR35?
IR35 is legislation that ultimately determines the appropriate tax treatment a Limited Company contractor should apply when paid by a company under a set assignment.
What is changing?
HMRC has indicated that from the 6th April 2020, End Clients and recruitment agencies will be responsible for determining the tax status of Limited Company contractors working in the Private sector and whether they fall inside of IR35. Previously this responsibility and liability sat solely with the Limited Company contractor.
This move follows a similar approach that was rolled out across the public sector two years ago. Falling inside IR35 would mean a contractor would need to pay income tax and national insurance contributions. You can find out more about IR35 and the April 2020 changes on the HMRC website here: https://www.gov.uk/guidance/april-2020-changes-to-off-payroll-working-for-clients
How is IR35 status determined?
Typically, IR35 is determined by whether someone is deemed to be a ‘disguised employee’. The parameters of how this is determined are broad and require some significant consideration in order to get to a measured decision.
From our observation so far we see that private sector clients are in anticipation of this legislation making the decision that they will no longer engage with contractors working through limited companies. This therefore means that such candidates need to arrange an alternative payment method in order to continue working with these clients.
From the 6th of April, where a client determines that an assignment is “inside IR35”, below will henceforth be the options available to current limited company contractors working with Private sector clients in order to ensure compliance with HMRC’s requirements. As mentioned earlier these are the same options currently available to those working within Public sector clients:
• Limited Company contractor Inside IR35 (Deemed Employment Deductions) – Should an individual whose assignment is deemed to be “inside IR35” wish to continue to engage as a contractor via their Limited Company, Quality Care Cover will calculate a “deemed employment payment”. The deemed employment pay rate is Income after deductions (including both employee and employer National insurance contributions) and Income tax.
• PAYE – Quality Care Cover will enter into a contract directly with the agency worker (not their Limited company) and make deemed employment deductions (employee national insurance and income tax) from the worker’s pay. Hourly rates will be inclusive of holiday pay.
• Umbrella Company Employment – Where a worker decides for their services to be engaged through an umbrella company, the off-payroll working rules may or may not apply. We can suggest some Freelancer & Contractor Services Association (FCSA) regulated Umbrella Companies if you choose this option.
Please ensure to contact us as soon as possible or at least a week before the implementation date to discuss your options and payment methods. If we do not hear from you then we will automatically adopt a PAYE route for making payments where payments currently are made gross into a limited company account. Where further relevant information regarding this legislation is made known to us prior to the 6th of April we will be sure to let you know.