Q. What is IR35?
IR35 or “off-payroll” legislation is the legislation that helps determine whether an individual would be deemed an employee for tax and NI purposes if they weren’t being paid via their personal services company (PSC). The legislation itself has been around since 2000 and at its core, hasn’t changed significantly since then. It has always been the responsibility of the contractor to do their own assessment and declare to the HMRC their tax status.
Q. What is changing and why?
From April 2021, the responsibility to do the assessment will change from the contractor to the end client. This is because it is widely believed that a large proportion of contractors (approx. 80%) working via a PSC are not taking adequate measures to assess their status and therefore are underpaying on tax and national insurance.
Q. Who is affected by IR35?
Individuals working as contractors who have typically created their own limited company in order to operate. This is known as an intermediary and is most commonly referred to as a Personal Service Company (PSC).
Q. What does this mean for a Personal Service Company (PSC) or limited contractor?
If a contractor is engaged on an assignment and the assignment is deemed as in scope, or where the client cannot satisfactorily determine that the contractor is out of scope, the agency will be responsible for deducting relevant Tax and NI from the total payment made to the contractor.
Q. When do IR35 changes come into effect?
A. The legislation applies to work completed after 6th April 2021*. You will need to keep up to date by submitting timesheets and invoices to us regularly so you minimise the impact on payment for work carried out prior to 6th April. Payments will be made in accordance with the agreed payroll cycle between both parties.
*It is likely that workers moving to SRG PAYE or Umbrella PAYE will need to transfer in March to ensure all transfers are complete before the effective from date. As this is a mid-week, we may need to adjust timesheets or payments for workers remaining through their limited company. We will communicate more when we have more information.
Q. How do I know if I’m inside or outside of IR35?
As the contractor and as part of your current responsibilities, you are legally required to complete regular assessments to see if you are inside or outside of IR35, and therefore to correctly assess your tax contributions. If you haven’t done this already, we strongly recommend that you do this as soon as possible with your accountant or tax advisor. This can be done using the HMRC CEST tool, which has been specially created for this purpose. It’s important to note that regardless of the outcome of your assessment now, the client may find a different result when they complete their assessment in 2020.
Q. I have completed my assessment and would like to request some changes to my contract with SRG and/or working practices – how can I do this?
If the HMRC investigate, they will assess many things including your contract with us and our contract with the client, but their focus will be on the real working practices which take place in your assignment. Although we cannot make changes to your contract specifically, we will endeavour to assess all reasonable requests and support where we can in terms of your working practices.
Please note, any assessment that the client completes will focus mainly on the actual working practices, rather than what’s in any contract – this is in line with the HMRC approach.
Due to the complex nature of an assessment, it’s important not to focus too heavily on one area.
Q. I have completed my assessment and my accountant/tax advisor has asked for a review of the upper-level contract (the contract between SRG and the client). What does this mean?
The upper-level contract (i.e. the contract between SRG and the client) is a commercially sensitive agreement that cannot be shared externally. Although the upper-level contract could be reviewed in the event of an HMRC investigation, the focus of any investigation will heavily rely on the actual working practices, and to a lesser degree, the contract between SRG and the limited company (PSC). We are therefore unable to respond to questions related to the upper-level contract.
Q. How would my PSC arrange a substitute with the end client if I needed to do so?
A. Please provide written confirmation of your proposed process for organising a substitution. Ideally, this would include an overview of suitable substitutes you can provide (or how you would select them). Once you have provided this, we will present it to the client to see if it is acceptable.
Please note, some of our larger clients have now given us an indication on how they will approach this (or advised that they wouldn’t accept a substitute) – we recommend you contact us directly on how to proceed should you wish to discuss providing a substitute.
Q. What is SRG doing in relation to IR35 and the upcoming changes?
A. The legislation is clear that the responsibility for completing an accurate assessment lies currently with the contractor and will move to the end client in April 2021. SRG is not financially regulated and so it is important that we don’t complete assessments or give specific financial advice. We do however recognise that this is potentially a big change for many of our customers, and so will do everything we can to facilitate visibility for all parties. To this end, SRG is actively speaking with our clients to understand their plans and how they intend to conduct assessments in order to communicate this with you asap and in advance of the April deadline. We hope to complete this by year-end, giving ample time to make any adjustments necessary and will provide further updates during the coming months. In addition to this, we will proactively provide information and guidance to our contractors on what their options will be in the instance their role is found to be in scope.
Q. My role has been found to be inside of IR35, what are my options?
A. In the run-up to April 2020, we found that around 80% of our contractors’ roles were found to be within scope of IR35. Despite this, in a survey, we found that over 50% of contractors didn’t take any steps to assess their options until AFTER they’d received their client determination. This put them under significant strain, and in the event, the legislation had gone ahead, would quite likely have meant a delay in payments as SRG and the Umbrella companies dealt with the significant increase in workload. It is therefore imperative that all contractors take steps to consider what they will do if their role is found to be in scope.
If you continue to work through your limited company*, you don’t need to do anything. We may need to deduct employers NI from your gross pay rate, as that is currently passed on to you in your limited company rate. In addition to this, we will make deductions prior to payment to account for tax and NI, which will be detailed in your remittance. As the benefits of working through your own limited company have decreased, you may decide to look at consider the benefits of being paid as an employee of either SRG or an umbrella company. Ask your SRG consultant or contact Ask@srgtalent.com if you wish to understand more about what this means, and what the benefit may be.
*Please note, some clients may decide that this isn’t an option, and you may have to consider SRG PAYE or Umbrella PAYE.
Q. What will my gross pay rate be if my role is found to be in scope of IR35?
A. Ultimately, this will depend on how you wish to be paid going forward. Currently, your limited rate includes the employed pay rate for your role, plus the associated costs that would usually be picked up by an employer, including but not limited to, employers NI, holiday pay, pension costs and the apprenticeship levy. Depending on the arrangement you choose, it is possible that a third party will become responsible for paying some if not all of these employer costs. Therefore, they will no longer be passed to you in your gross rate.
Q. What happens if I don’t agree with the client’s assessment?
A. In the event that the client finds your role in scope for IR35 and you think this is incorrect, you have the right to challenge this by following the client’s dispute resolution process, which will be communicated to you. If in line with the client dispute process, it is advisable that you provide copies of any assessments you have been completed during your tenure with the client so that there is a comparable assessment.
Under the legislation, the client has up to 45 days to respond to your query. During this time, we are obliged to deduct PAYE and NI from any payments made until such time that the client informs us, they’ve changed their determination. If you wish to wait until the dispute process has been finalised in order for payments to be made, please advise the SRG Ask team and/ or your consultant and ensure that you do not submit any timesheets during this time.
Q. How can I calculate my net pay if my role is in scope?
A. You can calculate your approximate. net (take home) pay by using the following government website: https://www.tax.service.gov.uk/estimate-paye-take-home-pay/your-results As mentioned above, if you are working through your limited company and your role is found to be in scope, your gross pay rate may need to be adjusted to account for the employer's national insurance and apprenticeship levy that SRG are now responsible for paying