In April 2020, legislation changes and means that it will be a legal requirement for every recruiter/engager to provide the agency worker with a KID (Key Information Document), but what does this actually mean?
The KID document is supposed to provide clarity with the rates provided and the model they use to engage with. So let’s take a look at what this means in practice as there appears to much controversy floating around over what figures should be supplied…
OPTION 1: Agency worker paid PAYE via the agency know as Agency PAYE.
The figure quoted will be the TAXABLE SALARY, this will be subject to Employees NI and PAYE tax. We would anticipate this being less than that offered for Umbrella PAYE.
OPTION 2: Umbrella PAYE paid via the Umbrella Company as an “employee ” of the umbrella.
The figure quoted will be the CONTRACT RATE. All employment costs must be met from this figure prior to arriving at the taxable salary. To calculate the TAXABLE SALARY, take the daily or hourly rate, deduct the Employers NI, Apprenticeship Levy, Umbrella Margin (and EEs and ERs pension if applicable). This figure will give you the equivalent Agency PAYE rate. On this basis we would expect to see a higher figure to cover the additional deductions from the contract rate.
Umbrella PAYE places the contract worker under deemed employment, and as such sits outside of the IR35 legislation. It has always been deemed as an alternative way of working to running a PSC, as long as the contractor is aware that the rate they need to negotiate is going to be subject to these deductions.
OPTION 3: Ltd company engagement paid direct to the contractors own PSC.
The figure quoted will be the CONTRACT RATE. All employment costs must be met from this figure prior to arriving at the taxable salary. The only difference to the above is the ability for certain expenses to be accounted for and any dividend payments.
So what is the key thing to take from this?
When looking for that next assignment, especially if the contract is deemed inside IR35, then you need to ensure that you are pitching for the correct rate for the role. Remember, the IR35 legislation hasn’t actually changed, the only thing that has been updated is where the liability for determining the status falls. So if you have been operating compliantly in the first place, and the end client / agency is happy to run through this then there should be no change for you.
If however, there is a blanket decision made on the contractor’s status, then you may be left with no choice at this time. The contracting market has seen many changes over the years… when IR35 came into the public sector there was panic, but it soon settled back to normality. Let’s hope this is just a storm in a teacup…