On Tuesday 17th March, the government announced they were delaying the IR35 private sector reform from April 2020, to April 2021. Although this is good news for genuine contractors, it doesn’t necessarily mean much will change over the next 12 months. Here is what the delay to off-payroll in the private sector will mean for contractors and freelancers in the UK.
Off-payroll in the private sector (IR35) will now roll out in April 2021
Due to the unprecedented threat of the coronavirus and the strain it has put on UK businesses, the government decided to delay off-payroll in the private sector (IR35) for a year. Instead of the legislation coming into effect in April 2020, it will be introduced on the 6th April 2021 instead.
Off-payroll in the private sector (IR35) – a quick overview
When off-payroll in the private sector comes into effect, contractors working in the private sector will no longer be able to determine their IR35 status. Instead, this responsibility will be passed on to the private sector organisation they are working for.
The delay to off-payroll in the private sector was announced last-minute and came as a huge surprise to a majority of stakeholders. By the time the announcement came, thousands of contractors had already signed up with an umbrella payroll and had accepted this was the end of contracting through a limited company. Why? Because they had been informed that after April 2020, their assignment would be inside IR35.
The delay to off-payroll in the private sector can help genuine contractors continue operating through a limited company. However, it doesn’t mean every contractor who had been advised to use an umbrella can now continue working through a limited company for 12 months.
IR35 legislation is not changing
IR35 is not changing. If you are a contractor who is deemed as inside IR35, you are not able to take advantage of the same tax savings as a contractor who is outside IR35.
If your client has already advised you that you are inside IR35 and should use an umbrella company, the delay in the IR35 private sector reform doesn’t mean you are free to change your status at your own accord. Providing your client has been responsible in their assessment; it is wise that contractors do not go against their assessment. If you do, it will surely raise a red flag and could catch the attention of HMRC. Remember, any contractor who is identified as paying themselves incorrectly could face heavy punishments from HMRC.
Genuine contractors can continue to operate through a limited company – in both the public and private sectors
If you are a genuine contractor (outside IR35), you are still able to work through a personal service company (limited company), regardless of the off-payroll legislation in both the public and private sectors. However, make sure you work for a trustworthy company. Despite blanket “inside IR35” assessments being unlawful, there has undoubtedly been several cases where organisations have been accused of incorrectly deeming their temporary workers as inside IR35.
What should contractors do about the delayed IR35 reform in the private sector?
If your private sector client has assessed your role as inside IR35, the best course of action would be to use an umbrella company for your payroll. This is because there are no real benefits to contracting through a limited company if you’re inside IR35.
If on the other hand your client has deemed your role outside IR35 and you believe the assessment is accurate, you are free to pay yourself as outside IR35 – with a combination of dividends and salary through a limited company.
Finally – if you are free to make your own assessment and pay yourself accordingly, you should speak to an IR35 tax status specialist and get an accurate assessment of your circumstances. If the specialist determines you are inside IR35, there may be a few minor adjustments to the contract or working conditions that could change it to outside IR35. If this is the case, why not have a word with your client and see if they’re happy to make some modifications?
Whatever your circumstances, use a contractor or umbrella company you can trust
Whether you are looking for an umbrella company or you are interested in contracting through a limited company, Churchill Knight can help you.
Founded by an IT contractor in 1998, Churchill Knight has built a reputation as a leading provider of accountancy and payroll services for contractors. We have recently achieved FCSA accreditation – the perfect way to showcase our commitment to compliance with our industry.
Our friendly consultants are on hand to give you a free and impartial consultation, as well as take home pay calculations based on your circumstance. Please give us a call on 01707 871622 or schedule a call back at a convenient time.