Updated 11th February 2020
The right for PSC contractors in the private sector to decide their own IR35 status is being taken away from April 2020, where they are engaged by a medium or large-sized organisation. With these changes coming into effect, it’s good to know how end-clients and agencies may handle IR35.
For example, what happens when an agency ignores an end-client’s IR35 decision on an engagement? What if the end-client does not provide a decision? How will end-clients in the private sector handle changes to IR35 in April 2020? We shed light on these questions and more.
In the public sector, and soon to be the private sector, the end-client is required to determine the IR35 status of each assignment involving contractors working through intermediaries (i.e. Personal Service Companies). However, in some scenarios it’s not quite that simple, as we have highlighted here.
What if an agency ignores an end-client’s IR35 determination?
It’s not in an agency’s best interest to ignore the end-client’s decision on an IR35 status. For example, if the end-client deems the contract ‘inside IR35’, but the agency misleads the contractor to believe it is ‘outside IR35’, the liability for tax and NI could fall on the agency.
End-clients do have an obligation to inform the next party down the supply chain about their IR35 decision – which is usually the agency. If they fail to do so, the liability is on the end-client, not the agency.
When informed of the end-client’s IR35 decision on an engagement, the fee-payer (whether that is the agency or umbrella company) is liable to deduct income tax and NI payments before paying the contractor/PSC. These rules will apply to all payments made for services provided on or after 6th April 2020, where the role is deemed inside IR35.
We are waiting on the Budget announcement on 11th March 2020 for final details on the changed IR35 legislation in the private sector.
The government is conducting a review on the IR35 changes in the private sector to address concerns from businesses and stakeholders on how to apply the rules. It is not widely anticipated to bring about a reversal in the rule changes however, so we expect these changes to go ahead from 6th April.
It’s time to speak to your end-client and agency
Many end-clients and agencies have started to take action with regards to their contractor talent pool, so if you have not yet been provided with a new IR35 determination for your assignment it is recommended you speak to your end-client or agency as soon as possible. If your IR35 status will change to IR35 come April, you may want to look at other payroll options – or otherwise appeal the determination. Regardless if you are currently working through a PSC, it is a good idea to obtain an independent contract review for your records.
Are you looking for an umbrella company?
Once changes to Off-payroll in the private sector arrive, private sector contractors who are deemed inside IR35 by end-clients will either switch to agency PAYE or umbrella payroll, go permanent or leave for retirement or to look for outside IR35 roles. Many contractors who are currently in roles are making the switch to an umbrella company – which will take care of all the tax and NI payments that you will be due to pay as a deemed employee. All compliant umbrella companies should offer you approximately the same take home pay, with the only difference being the margin the umbrella charges.
We encourage you to keep an eye out for the 11th March Budget announcement for final details on the legislation changes. In the meantime, if you would like to explore your umbrella company options, speak to our experts for a free umbrella take home pay calculation.
Call us on 01707 871622 or request a callback.
