If you’re a contractor, freelancer or agency, how prepared are you for the upcoming off-payroll IR35 changes?
These changes are imminent, and are due to be rolled out from April 1st 2021. Time is running out to prepare for these changes and how these are applicable to those subject to off-payroll working rules.
Off Payroll Changes
Off-payroll working rules have been in place since 2000, and were brought into force to help ensure that the rate of tax and National Insurance payments remained fair between a company’s employees, and those contracted through an intermediary like an agency or Limited Company. However, the rules don’t apply to self-employed persons.
The changes to the legislation will shift responsibility for operating off-payroll working rules from the contracted individual’s person with significant control (PSC), to the company that the individual is providing services to.
Crucially, this involves the company taking full responsibility for determining whether off-payroll rules apply, and calculating and deducting the appropriate taxes and NI contributions. This includes responsibility for deciding whether the rules should apply and deducting the associated employment taxes and National Insurance contributions.
Engagements with small organisations outside the public sector are exempt, minimising administrative burdens for the vast majority of businesses.
At present a 5% allowance to cover administrative costs is available to those who apply the off-payroll working rules. However, when responsibility shifts to the contracting company, the allowance will be removed for medium-sized organisations and above.
Working under an Umbrella Company
Many contractors choose to work through an umbrella company, who provide them with an employment contract allowing them normal employment benefits, effectively hiring them out to interested clients. The umbrella company then pays the contractor their salary after deducting PAYE contributions, and any other agreed costs.
Contractors generally are paid based on timesheet submission and the umbrella company will provide payslips, which can be useful for providing proof of employment and earnings for such things as getting finance or credit.
However, it’s crucial to choose a reliable and compliant umbrella company - steer clear of those offering incentives like 95% take-home pay, or anything that seems to be too good to be true. The chances are that this is exactly the case and the appropriate contributions to HMRC aren’t being made on your behalf, or you are being told to claim for expenses you’re not entitled to - which could land you with a nasty and unexpected tax bill.
The most important thing to look for is an umbrella company which is transparent and upfront about things like their accreditations and background, and any associated fees or penalties that may be applicable to you as a contractor, for example if you terminate your contract early.
Look for an established company with a good brand identity and reputation - recognised umbrella companies will be accredited by APSCo, FCSA or a similar professional body. It’s also vital that they are compliant with audits.
The final thing to look for is a good customer service and support team, who have a proven record of responsiveness when issues arise.