IR35 is a term that is being bandied around quite a lot at the moment in contractor circles. That is because of changes to the rules for off-payroll workers in the public sector from April.
The good news? If you are an Umbrella company worker, you don’t have to worry about it.
There is a great deal of information in the public domain about IR35 and most of it is pretty confusing. Essentially, back in 2000 HMRC caught on to the fact that some employees were leaving their existing employer and returning as a limited company the following day, doing the same work in the same way, in the same place.
In doing so, these “disguised employees” were avoiding paying tax and NI on most of their income, thereby short-changing the government’s coffers, or so they saw it. IR35 was a set of rules intended to identify such practices, i.e. workers who would (in HMRC’s eyes) be classed as employees, if you removed the fact they have a limited company.
Currently, limited company directors decide for themselves whether or not they fall outside of these rules, but as of April, this decision will become the responsibility of the public sector body they are working for.
The upshot of this is likely to be that many more limited company workers in the public sector will be found to be within IR35 (in official terms caught by IR35), in fact some public sector bodies are making a blanket decision on all contractors being inside the rules and indeed on whether they are going to engage with personal limited companies at all after April. Affected workers may see a substantial decrease in their take home pay and may no longer feel that running a limited company is the right choice for them.
The key thing to remember is that IR35 is only relevant if you are working through a limited company; if you work through an umbrella company, you can forget all about it. This is because, as an umbrella company employee you are already being taxed under normal PAYE circumstances.
If you are not already contracting through an umbrella company but considering it in light of these changes, there are some great benefits. For a start it’s a much simpler way of working. Just submit your timesheet and any claimable expenses, and wait to get paid. All your tax and NI is deducted at source, so you don’t have to think about setting anything aside. There’s also substantially less paperwork compared with running a limited company.
As an Umbrella company employee, you also get all of this as standard:
From April there will be a much smaller gap in the take-home pay between limited company and umbrella contracting in the public sector. Of course, there are still lots of other valid reasons for continuing to operate as a limited company which need to be taken into account when you are deciding what is right for you.
At Liquid Friday we have been supporting contractors for over 10 years. If you are currently operating as a limited company in the public sector, we are happy to discuss your individual situation and help you decide on the best way forward. No hard sell, no sugarcoating.
And if you are already with Liquid Friday… crack on it’s business as usual!
For more information go to the IR35 Helpline website at http://www.ir35helpline.co.uk