IR35 Conference – My views, questions and points

 

I attended a conference held by Lawspeed last week.

As well as the Legal team from Lawspeed, they also had:

  • Justin Giles who is one of the HMRC leads on Off-payroll legislation.
  • Ben Bruton, Head of Employment at the Agency Standards Inspectorate.
  • Stuart Armstrong from Lockton Insurance.

Below is a summary of my notes.  These notes are a mixture of my views, questions and some of the points discussed. 

The term “IR35” comes from a bulletin which was numbered – 35. Its publication was released by the Inland Revenue explaining the whole off-payroll tax issue back in the late 1990’s.  IR35 has no real legal meaning and should not be used in contracts.

The benefit of being outside IR35

The main benefit is you can claim relief on expenses and be paid by dividend.

Here’s a few online calculator suggesting the difference

  • £300 per day = £750+ saving per month.
  • £500 per day = £950+ saving per month.

The Taxes

If an assignment is inside IR35 the following costs will be taken:

  • The gross payment less the Vat, Materials and allowable expenses are called the Deemed Direct Payment – DDR.
  • Deduct PAYE and Employee NICs from the DDP. Employers NIC also due.

This Tax arises for any payment made from 6th April onwards.

For all contracts inside IR35 the Employers NIC is a cost the must be factored in.

Private Sector small companies

Small Companies are those that have 2 of the points below:

  • Have an annual turnover of £10.2 m or less
  • A balance sheet of no more that £5.1m
  • 50 employees are less.

These are outside the scope in April 2020 but the thinking is that they will probably be brought in line with legislation within a few years.

The key changes to the legislation

Contractors will no longer make the decisions on inside or outside IR35.

The decision maker is now the end client in all cases.

The liability for the contractor taxes is the “Fee Payer” or “Client” if it’s a direct relationship.

Information from the Worker where inside IR35

In most cases it is assumed that the worker has a material interest in the Intermediary Company or Partnership.

If the material interest is less than 5% for an Intermediary company of less than 60% of a partnership, then the Partnership or Intermediary would be responsible for taking out the taxes

The Status Determination Statement (SDS)

This is the assessment by the client determining if the PSC is inside or outside of IR35.

It must be given to the worker with reasons as well as sent up the supply chain to the “fee payer”

If it’s not sent or carried out the liability is with the Client.

If it gets stuck in the supply chain the liability sits with whoever its stuck with.

Reasonable Care needs to be objective with sound decisions.

If the Fee Payer is offshore then the client retains liability.

Do not fill roles unless and SDS has been completed.

Where an SDS result changes.

If an SDS result changes due to an objection or due to a review later down the line, what happens to the tax?  Currently this is unclear.

Options for Contractors after April 2020

  • Stay as a PSC
  • Go to an Umbrella company
  • Go on payroll of the agency
  • Go Perm

Cost comparison if PSC caught by IR35 and goes on Payroll

Currently paying PSC £1500 and the PSC deals with the tax.

From April 2020 PSC caught by IR35 and the company is taxed as an employee then the agency would pay the following based on paying the same £1,500 weekly payment

  • PSC £938 (worse off by £562)
  • HMRC £769
    • Paye £456 (20%/40%)
    • EES NIC £106
    • ERS NIC £207
  • Total cost to Agency is £1,707 (worse off by £207)

PSC Worse off

Agency worse off

Need to increase the contract rate with the client to compensate for Employers NIC

Is this really an option?

You still need to consider the PSC who is £562 worse off

Need to negotiate with the contractor new rates.  Difficult to calculate as each PSC needs to be looked at individually.

  • Corp tax being paid by PSC could be using losses etc
  • The tax and tax rate being paid by the shareholder, do they have another income?
  • The amount of expenses being put through the PSC.
  • The amount of dividends being drawn but the shareholder or is the profit being left in the company?

Contract Negotiations.

Where contracts are going over the April 2020 date they will need to be reviewed beforehand.  This may involve contract renegotiations.

All contracts need to be set up like projects

Check Employment Status for Tax CEST

Concerns raised about the CEST tool eg too text heavy, ambiguity around terms,  hard to navigate, irrelevant info

This is currently being upgraded.

There was quiet a lot of push back from the audience to HMRC when we did a “dummy run”.  We were told that all issues should be sorted in the upgrade.  When we asked when it would be ready, we were told potentially end of year.

Umbrella Companies

There was quite  a bit of discussion on Umbrella companies but I wasn’t able to get a handle on who are the best ones out there.  There are some HMRC approved ones and Lawspeed has its own accreditations for Umbrella companies.

Misc

Where PSCs are inside IR35 and go on payroll you will need to considerAgency Worker Regulations and Conduct Regulations.

Its thought that insurance premiums will increase for agencies.