From April 2020 the Off-payroll working legislation means that your hirer, and not you, will decide your IR35 status. Are you prepared?
public sector experience
In April 2017 this legislation was brought into the public sector. It transpired that generally hirers were risk averse and deemed most assignments to be caught by IR35.
This had a significant impact on contractors net income and how they were engaged.
how do you prepare?
Having a detailed IR35 review of your contract and working practices for any assignments that go beyond April 2020 will allow you to understand your strengths and weaknesses and put you in a good position to discuss them at an early stage with your hirer. Using the government’s independent Check Employment Status Tool (CEST) would be a good starting point.
IR35 decisions what are your options?
- become a temporary employee of the hirer, if this is offered
- be engaged by your agency under PAYE, if this is offered
- be employed and paid by an umbrella company
- be employed and paid by a PEO company
- keep your limited company and be paid by a fee payer
You can continue to use your limited company for outside IR35 assignments.
keeping your limited company
If your hirer decides you are caught by IR35 then you can keep your limited company. The company that pays your limited company is known as the fee payer.
The fee payer will enter into a new contract with your limited company paying it a net amount after deducting it’s margin, employers national insurance, apprenticeship levy and PAYE tax and employee’s national insurance.
Keeping your limited company allows you to use it for both inside and outside IR35 assignments.
benefits of giant IR35 fee-payer
We have over a decade of experience of sitting in the contract chain between agencies and limited company contractors for clients such as Barclays, Alexander Mann Solutions, Cielo and more.
As the IR35 fee-payer we have compliantly made thousands of payments to limited companies since April 2017.
- speedy set up
- bespoke, mobile enabled software
- invoice, remittance and payment trackers
- nearly 30 years of experience
- 100% compliance
- self-bill invoicing (no work for you)
- full contractor support
- SMS alerts
Please note that these calculations are based on the following series of assumptions:
- inside IR35 status with PAYE tax and employee’s NI deductions applied
- basic Rate (BR) tax code used
- average savings made with giant advantage; no expenses
how it works
If the hirer says your assignment fails IR35 you can continue to operate via your own limited company allowing you to benefit from future assignments which are outside IR35.
The legislation applies to contracts entered, or payments made, on or after the 6th of April 2020. Therefore the fee payer arrangements should be set up and ready well in advance of this date.
The legislation sets out how and what tax deductions the fee payer must make.
As the fee payer, we will enter into a new contract with your limited company at a lower contract rate. This new contract rate will be calculated based on the previous assignment rate less our margin, employer’s national insurance and apprenticeship levy. (By law we cannot deduct these amounts from your contract rate and therefore your rate with us is lowered to allow for it).
We then deduct PAYE taxes from the new contract rate before paying the remaining net amount, plus any billable expenses and applicable VAT, to your limited company bank account.
PAYE tax is deducted by us using a Basic Rate (BR) tax code of 20%. Within approximately eight weeks HMRC send us an updated tax code to use, which will ensure we are applying the appropriate level of tax. If you leave our service before this tax code comes through you may have additional tax to pay on your self-assessment return.
Your limited company gets a credit for all taxes paid so that you are not paying it twice.
As fee payer we account to and pay HMRC the tax deductions.
We will issue your limited company with the self-bill invoice reflecting your new agreed contract rate with us and, once we have received funds from your agency will send payment to your business bank account along with VAT if applicable.
If you are currently accounting for your assignment as inside IR35 then you’ll stop doing this for any payments after the 5th of April 2020 because the fee payer will be in affect doing this for you following the rules in the new legislation.
If your hirer decides that your assignment is outside IR35 we can of course pay your limited company gross of any deductions. In these circumstances we would require a copy of the status determination statement from the hirer.
As the fee player we are liable for deducting the wrong amount of tax. This liability cannot be transferred to you the contractor.
If you decide at any time that you want to be employed and paid by an umbrella company or PEO then you can continue to use your limited company for those assignments which are outside IR35.