Key FAQs for Contractors
Can I dispute or disagree with an employment status decision?
There can be a client-led process of appeal if you don’t agree with a status determination. The client has a maximum of 45 days to respond to any appeal with very simple outcomes: they can change the determination and provide a new statement but only by proving that the revised determination is accurate, or they can stand by their original decision with an explanation.
How will I be paid if I am inside IR35?
If the client determines that an assignment is “inside IR35”, you need to understand what options are available in terms of an alternative to an off-payroll model.
The options are:
1. PAYE Status (agency worker)
There is currently a great deal of debate and positioning on this, with recent examples of many larger businesses simply stating that all roles will be deemed inside of IR35. This means that they will only offer a role if the contractor has payments deducted in the same way as a traditional PAYE worker.
If you take the role via this approach, as a limited company contractor, your fee-payer / client will be responsible for making the appropriate deductions from your rate / charges. This includes income tax and employee’s NICs, but will also include deductions for employers’ NICs, and the Apprenticeship Levy.
Under the off-payroll revision, any limited company contractor who is inside IR35 can no longer claim the 5% administration allowance, which has been in place since 2000.
2. Umbrella Company
Where an umbrella company employs the worker directly, the off-payroll working rules do not apply.
3. ‘Inside IR35’ PSC
Should you wish to continue to engage as a contractor via your PSC that is deemed “inside IR35”, then your recruiter will need to calculate a “deemed employment payment” using the RTI (Real Time Information) payroll system. The deemed employment pay rate is the income of the worker after deductions, including both employee and employer NICs and the Apprenticeship Levy. Neither worker rights nor stakeholder pension rights apply. No expenses allowance applies.
Does this mean that if deemed to be an ‘employee’ for tax purposes, I will qualify for employment rights, such as holiday pay?
If your contract is deemed to be inside IR35, then you will be taxed as an ‘employee’, but will have none of the statutory employment rights associated with the traditional employment models.
Will my rate be affected by the new rules?
If your assignment falls “inside IR35”, the take-home pay will be less, as the recruiter has a statutory duty to deduct the appropriate tax and NICs. Be aware that, historically, PAYE rates have always been lower than PSC rates. You may therefore find that, in future, the pay rates offered are lower.
What if I complete a variety of contracts with different end-clients?
This was a standard and accepted point of approval of status previously. However, with the change in the legislation, IR35 now applies to a contract, not a person.
Therefore, you might be a fully effective contractor but still find that one of more of your contracts is deemed to fall under the IR35 revised rules, whereas another is not. If this is the case, you would have to engage under PAYE conditions for those deemed inside IR35, but should be able to operate as normal for the others and be paid via invoice.
Is there any point keeping a limited company after April 2020?
There is still a fair amount of uncertainty about exactly how the off-payroll revision will work in practice. It may be that you have a mix of contract engagements in the future - some could be deemed inside of IR35 and some outside, allowing you to operate in traditional contract fashion.
Therefore, and particularly at this stage, it is probably premature to review your limited company status, even if your current or next contract is likely to be caught by IR35.
For example, Qdos is carrying out various analysis activities with Private Sector firms and it suggests that tens of thousands of contractors will have their IR35 status assessed fairly.
So is there any way around the new rules?
As in all cases there will probably be a number of ‘avoidance schemes’ that appear.
We would strongly advise contractors to avoid such schemes, as you may well be forced to repay costs plus any unpaid tax and potentially penalties following HMRC investigation.
Work with your “fee-payer” or agency to ensure that a fair determination has been completed. They will all be looking to ensure this is the case due to the wider financial penalties that are threatened.
HMRC has published some very useful information on how to identify schemes that wrongly claim to increase your take-home pay if you're a contractor.
Read their guidance here: www.gov.uk/guidance/tax-avoidance-schemes-aimed-at-contractors-and-agency-workers