The IR35 reform is being rolled out to the private sector and the changes are set to change the contractor sphere. After all, it’s already had a substantial impact on the public sector, and a similar effect is expected to be felt this time around too.
Wondering how exactly they will affect you? Here, we explore what you can anticipate as a contractor – along with your options.
The changes
From April 2020, the responsibility for establishing the IR35 status of PSCs (Personal Service Companies) will fall to the end client – rather than the contractor as has been the case traditionally. However, this only applies to those clients who are a medium or large organisation as outlined in the Companies Act 2006. To be categorised this way, they will need to satisfy two out of three following criteria:
- An annual turnover of no more than £10.2 million
- A balance sheet not exceeding £5.1 million (before liabilities)
- An employee headcount of more than 50
And so, if they do meet two or more of these requirements, they are then legally obliged to provide the contractor with an IR35 Status Determination Statement (SDS). This stipulates – in writing – whether the PSC is inside or outside IR35, as well as how they reached this conclusion. Any agencies accountable for paying the PSC will also need a copy.
In the situation that the contractor considers their SDS incorrect, they have the option to appeal it.
The outlook: Inside IR35
Those contractors deemed to be inside IR35 will be met with a reduced take-home pay of around 20-30% less. This is because they’ll be required to pay National Insurance contributions (NICs) along with income tax – in the same way that employees do.
There is also the potential risk of HMRC retrospectively determining their role as inside when they were functioning as outside IR35 before the reform. It will be key to look at the rate being offered too – for instance, whether or not the employer’s NICs will be deducted from the rate.
The solution
Being caught inside IR35 appears to leave contractors in peril. However, this doesn’t have to be the only situation. There are alternative options:
Accurate status determination
We’ve partnered with insurance specialists Kingsbridge and Larsen Howie to bring you a dedicated solution. We work together to establish your accurate SDS. If you’re found to be outside IR35, we can then indemnify the end client against this decision. This means that there is either less or zero risk to them, which is what they’re concerned about.
Dormant limited company
If your found inside and expect to find a new contract in the next 12 months and you may be outside IR35 for your next assignment, or you’re looking to leave the contracting world temporarily, then we also have a solution for you. Our dormant service (at a reduced fee of £40+VAT) is ideal for contractors who haven’t been trading for three months yet imagine they’ll either return to contracting or be outside IR35 within a year.
Another route is to close the PSL, if reserves are less than £25,000 then we would be able to assist with closure and administer the closure process via the DS01 route. Alternatively you will have to go through a MVL (Members Voluntary Liquidation) meaning you’d need to involve liquidators at the state of closure. Typically the expected costs of a liquidator sit between £1,500 – £2,000.
Umbrella solution
If you’re technically classed as an employee and therefore require the services of an umbrella company, then you’ll be pleased to hear that this is now part of our offering. It can be accessed if you choose to use our Switch service – this keeps your limited company open, whilst giving free use of our umbrella solution. Alternatively, it can be accessed from as little as £18 per week.
So whilst IR35 may seem overwhelming, and you might think that you have no say in the matter, there’s an option to suit you. Plus, there are a number of things you can do to prepare ahead of the changes. One of these is getting in touch with our friendly team for guidance and to discuss the options available. You can call us on 0161 669 4221, email info@biaccountancy.com, or fill in our online contact form.
