Welcome to your IR35 hub. With the IR35 rules due to change in April 2021, we’ve put together a selection of IR35 resources and information about how we can help and support you in the coming months. We hope you find everything you need here, but if you do have any further questions or think of anything else you’d like to see on this page, please do get in touch.
IR35 – the topline
IR35 (also known as Intermediaries Legislation) is legislation created to identify individuals falsely establishing limited companies as a means to reduce their National Insurance (NI) payments and taxes. This is often referred to as “disguised employment”.
There are a number of rules that aim to determine whether your contract falls inside or outside of IR35. If your contract is ‘inside’ IR35, you will be taxed in a similar way to if you were a permanent employee – either via your client’s payroll or through an Umbrella Company. If your contract is ‘outside’ the legislation, you would be considered not an employee of your end client and would be able to structure your income so as to benefit from the tax efficiencies available through the use of dividend payments.
For this reason, many contractors prefer to work on contracts that are found to be outside of IR35.
If your contract is in the Public Sector, the end hirer will be responsible for assessing IR35 status, but for Private Sector contracts (until April 2021), that responsibility sits with the contractor. The entity making the IR35 determination is also liable for any fines if they are found to have got it wrong (through an HMRC investigation).
From April 2021, the rules around IR35 in the Private Sector will be brought in line with those for the Public Sector, with the end hirer making the determination across the board. The exception is for contractors working for small businesses, where the responsibility will remain with the contractor.
The rules used to determine IR35 status are not changing, so in theory, if you are legitimately contracting through a Limited Company now, then you should be able to continue to do so post-April. However, our experience of the changes being implemented in the Public Sector suggest that some end hirers may take a more risk averse stance, deeming a larger proportion of contractors as inside IR35 as a result.
This may result in some contractors needing to work through an Umbrella Company from April 2021. This creates an overarching contract between you and the hirer and deals with your admin, tax and payroll. The hirer pays your Umbrella Company who takes off their fee, National Insurance and income tax and passes what’s left on to you. You’re effectively taxed as an employee.
For these reasons, many contractors may find themselves needing to switch between their Limited Company and an Umbrella Company at short notice, while they challenge a client’s determination, look for a new contract or negotiate their fee to cover any take-home pay shortfall.
All Aardvark clients have the opportunity to access the following IR35 support:
- IR35 advice and contract reviews from your Client Director – you’ll get straightforward feedback and advice on your contracts including suggested changes to make to your contract and working practices in order to make an ‘outside’ determination more likely
- Support discussing IR35 with agencies and end clients – As well as specific advice on how you can change the way you work in order to allay and client concerns, we have also created a guide for agencies and clients that you can send on or use as a discussion point. See the section below.
- Free use of SG Umbrella service should the need arise – it’s simple to switch back and forth to our Umbrella partner, you can even use both at the same time, and because we’ll have a holistic view of your finances, we’ll be able to give you better tax advice too Just give us a call.
- Tax investigation Service – included for all ‘essentials plus’ clients and available at £7.50 per month for ‘essentials’ clients, TIS can protect you against any of the possible defence costs of a future HMRC IR35 enquiry.
All about umbrellas
At Aardvark Accounting, we will always support our clients in their aim to continue working through a Limited Company. And our hope is that once the dust settles, we will see Private Sector end clients and agencies making considered and reasonable determinations. However, in the interim, there may be periods of time when you will need to work through an umbrella, either because you choose a contract where this is the only option (and the rewards are adjusted accordingly), or in the short term whilst you challenge a status determination. As an Aardvark Accounting client, you have the facility to use our FCSA accredited umbrella company for no extra cost, whenever you need to, and because we’ll have a holistic view of your finances, we’ll be able to give you better tax advice too.
Meantime, here’s the topline on umbrellas…
Umbrella companies have flourished in the UK, as a ‘hassle free’ business structure to operate under for many contractors. A PAYE umbrella acts as an ‘employer’ on behalf of its contractor employees. A contract is signed between the umbrella company and recruitment agency or end client on behalf of the contractor who will be carrying out the assignment. The umbrella then provides a payroll service to its employees, processes all timesheets and invoices, and pays its employees a salary after allowing for deductions.
As someone who has chosen to operate via a Limited Company, that’s a very good question! And the answer is, well, you usually wouldn’t. Most contractors earning over a certain day rate are better off taking a combination of salary and dividends through their Limited Company. And until April 2021 it is the contractor’s responsibility to determine that they are able to do this by operating legally ‘outside’ IR35. However, come April 2021, that responsibility shifts to the end hirer, and because they will also bear any financial penalties for getting it wrong, we suspect that they might take a more risk averse stance, at least in the short term. So you may find yourself being pushed towards an umbrella solution by an underprepared or worried end hirer. Depending on the offer (and now may be the time to negotiate a higher day rate), you may choose to use an umbrella for the contract in order to pay the tax and National Insurance due.
All Aardvark clients are entitled to free use of SG Umbrella (one of our Group companies) for as long as they need it. They can work on contracts through theLimited Company and Umbrella simultaneously or switch between the two as needed. A call to the Client Director is all that’s needed.
Any decision to close your Limited Company should be considered very carefully as you may lose some tax benefits of closing your company (Entrepreneurs Relief) if you were to open a new company within 2 years. It may be prudent to keep your Limited Company open whilst the dust settles post-April 2021 and to allow you to consider your longer term plans and options. With Aardvark, you can use SG Umbrella whilst keeping your Limited Company running and swap between your existing Limited Company umbrella depending on the contract. There’s no extra cost, so for most contractors, keeping their Limited Company open gives them the level of flexibility needed.
Answer our quick IR35 survey
At Aardvark Accounting, we’re keen to prepare for the upcoming changes by understanding how prepared end clients are for the changes, and by engaging with agencies to ensure that our group company SG Umbrella (which, as an Aardvark client, you are entitled to use at no extra cost) appears on their approved supplier list. To this end, we would appreciate if you would answer our simple 4 question survey. It’ll only take a couple of minutes and your answers will be anonymous. If you have already completed the survey, thank you very much!