After over a year delay due to the coronavirus pandemic, the reform of IR35 in the private sector officially took effect from 6th April 2021. Despite having this extra breathing time, this year hasn’t been plain sailing for those in the contract market with Covid and Brexit added to the mix.
With the responsibility for determining whether engagements are inside or outside IR35 now shifting to the client, many organisations are taking a blanket approach to hiring and scrapping their contractor workforce to avoid any risk of investigation or fines – a further blow to both parties when supposedly the economy should be bouncing back.
With the complexities of the reform impacting the demand for contractors, quite rightly many contractors are starting to consider other options.
As an IT staffing provider with a vast contractor community, we want to help demystify the legislation and lay down all the information you need to know about contracting post-IR35-reform.
As a contractor, the responsibility for determining whether your engagement is inside or outside IR35 now sits with your client, not you. The end-client will also now be required to operate PAYE and pay employers’ National Insurance Contributions (NICs).
Put simply, it is now up to the end-client to decide on whether your working relationship falls inside or outside IR35 as a bid for the government to avoid misuse and avoidance of tax by Contractors.
If your client determines that you fall in-scope of IR35, then you will receive payment via their payroll system where they will deduct your income tax and national insurance directly, OR on a PAYE basis if you use an umbrella company rather than your own limited company.
All you are now responsible for is understanding how you are being paid and that it is the right amount.
Below we have made a simple table to show the difference in scenarios that would class you as either inside or outside IR35:
If you currently contract via your own limited company and your client deems your engagement to be outside of IR35, then you carry on operating as usual.
If you are deemed inside IR35 however, then this creates administrative and payroll burden for the client and a reduced net income for the contractor - hence why we are seeing a lot of private organisations avoiding hiring contractors and why permanent roles have become a more popular route for both parties.
However, if you are a genuine Contractor, who operates compliantly on an off-payroll working basis then you have nothing to worry about and would encourage you to carry on as you are, ensuring you have a comprehensive and up-to-date understanding of the legislation.
So, if any impact at all - it is more to do with ensuring you are up to date with the legislation and are prepared should any investigation occur.
Although it may not be ideal initially, pausing your current contract until an assessment has been carried out is the best way to proceed.
If they are happy to continue with you and you want to continue working on the project, then the end-client should have no hesitation to secure you an outside IR35 engagement if they follow it with compliance.
The main difference is that when you work via your own limited company, you handle your tax and NICs, when you want to take income out of the company and can claim tax relief on business expenses – meaning it’s one of the most tax-efficient ways to operate. With that benefit comes more responsibility. Submitting your annual accounts to Companies House and keeping up to date with HMRC tax deadlines.
In comparison with using an umbrella company, which isn’t as tax-efficient, is much less hassle and therefore a great option for those entering the contract market for the first time or on a short-term basis. They handle your tax and NI deductions and pay you in the form of a salary.
With the IR35 reform specifically, using an umbrella company is becoming more attractive for both the client and contractor. For the client, it means they can avoid the assessment altogether whilst passing any administrative burden of an in-scope determination to the umbrella company. As a contractor, you don’t have to worry about the determinations for each engagement and get the freedom of contracting without the responsibility of running a company.
Despite there being a lot of fear and uncertainty around the IR35 reform and contracting, many who have taken the lead in IR35 compliance are now in an even better position than before for their workforce needs, as they can continue to reap the benefits of engaging flexible skilled talent to support with digital transformations and growth.
Those who see the benefits will soon follow and as a result, we will no doubt see a surge in demand for contractors. And with businesses opening their doors again from lockdown, many will be investing in their tech infrastructure to support their bounce back and resuming on paused projects.
And let us not forget the surge in demand we have already seen in relation to lockdown measures. With working from home here to stay, businesses are becoming increasingly reliant on technology, and in turn, skilled IT contractors who can deliver and support their IT needs.
Here at MA, we are working with a wide range of clients across Europe and North America who are currently hiring for contract positions. So, get in touch with us today to see if we have a new opportunity for you.
We’re here to support you through the process and work with preferred suppliers should you want to go down the route of using an umbrella company.