IR35 or “off payroll” legislation is the legislation that helps determine whether an individual would be deemed an employee for tax and NI purposes if they weren’t being paid via their personal services company (PSC). The legislation itself has been around since 2000 and at its core, hasn’t changed significantly since then. It has always been the responsibility of the contractor to do their own assessment, and declare to the HMRC their tax status.
From April 2021, medium and large-sized organisations outside the public sector became responsible for deciding the employment status of contractors for tax purposes. Previously, contractors themselves were responsible for making this decision in these sectors. This ensures consistency with the public sector, where these arrangements have been in place since April 2017.
You are affected by the changes to the off-payroll working rules (IR35) if: You are a contractor who works through an intermediary, e.g. you own limited company, often know as a personal service company (PSC), and you provide your services to public sector organisations or medium or large-sized organisations outside of the public sector. A medium or large-sized organisation will have a turnover of more than £10.2 million, a balance sheet total of £5.1m and/or more than 50 employees.
If a contractor is engaged on an assignment and the assignment is deemed as in scope, or where the client cannot satisfactorily determine that the contractor is out of scope, the agency will be responsible for deducting relevant Tax and NI from the total payment made to the contractor.
When did these changes come into effect?
The legislation applies to all payments made for services provided on or after April 2021. Payments will be made in accordance with the agreed payroll cycle between both parties.
As the contractor and as part of your current responsibilities, you are legally required to complete regular assessments to see if you are inside or outside of IR35, and therefore to correctly assess your tax contributions. If you haven’t done this already, we strongly recommend that you do this as soon as possible with your accountant or tax advisor. This can be done using the HMRC CEST tool, which has been specially created for this purpose.
If you continue to work through your limited company, you don’t need to do anything. We may need to deduct employers NI from your gross pay rate, as that is currently passed on to you in your limited company rate. In addition to this, we will make deductions prior to payment to account for tax and NI, which will be detailed in your remittance. As the benefits of working through your own limited company have decreased, you may decide to look at consider the benefits of being paid as an employee of Blue Arrow. Ask your Blue Arrow consultant if you wish to understand more about what this means, and what the benefit may be.
Pay As You Earn is the standard form of worker taxation in the UK and offers a number of advantages over Ltd Company Terms in the form of additional benefits and conditions; Any PAYE workers on assignment with the same client for 12 weeks or more becomes eligible for “Parity Terms” in both pay and conditions with the end client’s permanent workers doing the same job. This means that all former Ltd Company Drivers (with more than 12 weeks on assignment at the same client) will be remunerated at the same rate at the permanent Drivers, in many cases the provides a significant pay increase. All PAYE workers accrue a minimum of 28 days paid holiday per year in addition to their hourly salary (more where working to parity terms). All PAYE workers accrue 3% Employer Pension Contribution in addition to their hourly salary. All PAYE workers have their National Insurance contributions paid ensuring they are eligible for a full state pension upon retirement. All PAYE workers have SSP entitlement.
Ultimately, this will depend on how you wish to be paid going forward. Currently, your limited rate includes the employed pay rate for your role, plus the associated costs that would usually be picked up by an employer, including but not limited to, employers NI, holiday pay, pension costs and apprenticeship levy. Depending on the arrangement you choose, it is possible that a third party will become responsible for paying some if not all of these employer costs. Therefore, they will no longer be passed to you in your gross rate.
In the event that the client finds your role in scope for IR35 and you think this is incorrect, you have the right to challenge this by following the client’s dispute resolution process. Under the legislation, the client has up to 45 days to respond to your query. During this time, we are obliged to deduct PAYE and NI from any payments made until such time that the client informs us they’ve changed their determination. If you wish to wait until the dispute process has been finalised in order for payments to be made, please advise your Blue Arrow consultant, and ensure that you do not submit any timesheets during this time. This document does not constitute tax or legal advice.
If you need additional support or guidance surrounding these changes, please contact your local Blue Arrow branch today.
