IR35 in the Private Sector is coming… but are you prepared?

IR35 in the Private Sector is coming… but are you prepared?

Private sector firms need to prepare and take their time to understand the complexities of the incoming IR35 tax avoidance reforms or risk losing their contractor talent!

Under the reforms due in April 2020, medium to large private-sector organisations will take responsibility for determining whether the contractors they engage with should be taxed in the same way as salaried employees (inside IR35) or off-payroll workers (outside IR35).

Under the current legislation, it is down to contractors to self-declare how they think they should be taxed.

In April 2017, the IR35 reform in the Public Sector was introduced and in the lead-up to and aftermath to these changes, there were numerous reports of contractors walking out across government departments, and claims that many had had their engagements incorrectly classified.

It is now feared that the same could happen again once the reforms apply to the private sector, unless firms take the time now to get to grips with the rules and their new responsibilities and we are starting to see some of the tell tale signs emerging…

Barclays prepare for IR35 reforms…

According to HMRC’s IR35 guidance, organisations are supposed to assess the tax status of each contractor they engage with on an individual basis, but evidence from the Public Sector Reform suggests that has not always been the case and the announcement by Barclays has come as no real surprise!

A knock on effect of large businesses refusing to engage limited company contractors due to IR35 changes from April 2020 has begun. Morgan Stanley and M&G Investments, Barclays and Lloyds have now all said that they will not enter into contractual agreements with PSC engagements.

IR35 & Working with Clarity Umbrella

For those contractor’s caught in the cross fire, working via an umbrella company may be one of the options they have moving forwards. If you are looking to operate via an umbrella then you need to make sure you understand exactly what you are getting before you accept the assignment.

One of the biggest changes will be that to your take home, if you are not able to negotiate a rate increase, then please do use our online calculator to assess what your take home may be working as an employee of the umbrella.

Photo by JESHOOTS.com from Pexels.

What does an umbrella company do?

So we’ve been asked to explain in simplistic terms what an umbrella company does! So here goes…

Working via an umbrella company is an alternative to operating your own Ltd company. It was deemed an option that required minimum hassle, minimum paperwork and ensured all taxes were paid at source under PAYE.

At Clarity, we run payroll for individuals who are working on a temporary assignment with a client, but wish for their taxes to be taken care of and to work under a contract of employment giving them statutory employment rights.

In April 2020, the way in which end clients engage with contractors is about to change (applicable to medium / large businesses). This is covered under a piece of legislation called IR35. If the end client deems an individual is akin to an employee, then HMRC expects them to be paid as an employee ie paying PAYE taxes, not drawing dividends!

Working via an umbrella company, the brolly is deemed the employer and the end client’s liabilities for tax are negated.

The contractor, should I say employee, is employed under a contract of employment, receives a payslip everytime they are paid, and at the end of the employment they will receive a P45, as per standard employment.

BUT, working via an umbrella company is not exactly the same as normal employment, so you will need to ensure that you know exactly what you are getting before you sign up.

For more information on understanding your take home through an umbrella please click here.