If you are a contractor working on an assignment which is considered to be outside IR35 now, you may find this is no longer the case when the new IR35 rules come into force in April 2021. This is no reason to panic, but it is important to weigh up your options.
If your end hirer or agency has not already been in touch to discuss your assignment’s IR35 status, then it’s important for you to seek clarification as soon as possible and then get in touch with us to review your options.
We have significant experience in IR35 and can provide tailored advice and support to help you navigate the impact of the IR35 reforms.
What do the IR35 reforms mean?
The reforms mean that responsibility for determining your IR35 status is switching from you to the end hirer (unless they are ‘small’ in which case the new rules do not apply).
End hirers may classify your assignment as inside IR35 because their assessment offers a genuinely different result, or they may simply decide it is too difficult and risky to allow contractors to continue on an outside IR35 basis. This was certainly the case when similar legislation, was introduced into the public sector in 2017 though such ‘blanket bans’ were subsequently relaxed in favour of individual assessments on a case-by-case basis.
Inside IR35 options
If you find your assignment is now inside IR35, you need to understand your options but you don’t necessarily need to change the way you work.
Operating as a limited company (PSC) contractor whilst inside IR35
There may be a benefit to you continuing to operate through your PSC, even though it would mean you pay more tax. This is because you would be considered ‘employed for tax purposes’ and therefore no longer have access to the tax-related benefits of a limited company.
Whether this approach is right for you will depend on your personal circumstances and factors such as how long you expect to work as a contractor and whether your end hirer is likely to relax the rules in the future.
Get help from Clever Accounts: We can provide detailed illustrations to show you how this option would impact your take-home pay. If you choose to operate this way, we will provide the required accountancy support to take care of tax compliance with HMRC’s rules.
Join an Umbrella company
Another option to consider is to join an Umbrella company. When working this way, you become an employee of the Umbrella and pay tax and National Insurance just like a regular employee.
You have to pay the Umbrella a fee for providing the service, but there are benefits in that you would have access to SSP, SMP, sick pay, paid holiday and a record of continuous employment. All compliant Umbrella companies adhere to the same tax rules, so there should be very little difference in the take-home pay offered by Umbrella companies.
Get help from Clever Accounts: We are part of JSA Services which operates one of the UK’s largest Umbrella companies. JSA has a strong reputation for customer service and compliance and today supports tens of thousands of contractors to enjoy the freedom and flexibility of contracting.
What happens to your PSC if you switch to Umbrella?
If you switch to Umbrella, you don’t necessarily have to close your Limited Company (PSC). In fact, it’s recommended you don’t close your limited company, just yet.
Unless you have other income going into the limited company, then it’s likely there will not be much activity through the company. In this case, you could opt to make the company dormant. With a dormant company, you don’t have to submit full annual accounts to Companies House, though there are certain procedures that must be followed to notify HMRC that it is dormant. If this option is right for you, we will take care of all the admin.
An ‘active’ state means the company has incoming or outgoing money and you must submit annual accounts to Companies House and HMRC. Whilst this means there is still some admin and therefore cost involved in keeping your PSC open, it is likely that you would be better off. This is because you would have the added cost and hassle of setting up another PSC in the future, should your IR35 status or circumstances change. Additionally, if your company is less than two years old, you would forfeit Entrepreneurs Relief, a tax relief which is applied when you close a company or start another within two years.
So, if you are going to close your company, or you’re not sure, it is more tax-efficient to wait until after your two-year trading anniversary.
Get help from Clever: we will take care of all the tax and accountancy issues related to your active company.
Here to help
If you are affected, or likely to be affected, by the IR35 reforms, please do get in touch. We have significant experience and expertise in IR35 and contractor accountancy and can work alongside you to advise you on the best way to respond to the latest reforms via our contractor accountancy or JSA Umbrella services.