Is now the perfect time to get ready for IR35?

August 13, 2020

Although we appear to be in some sort of Corona-time warp right now, we can assure you that discussions will return back to IR35 again faster than we all think, so we felt that now was a good time to pull together the latest views and guidance and outline some of the options for recruitment agencies and contractors.

Is the UK ready for IR35?

Although there is one final bill to go through, the view is very much that this WILL go ahead in April 2021 and there won’t be any view to abolish the legislation (as some are still hoping). From the government’s perspective, they are estimating that the additional tax revenue generated will total £3.1 billion between 2020 and 2024. Given the impact of the Coronavirus Job Retention Scheme and economic recovery packages that the Government has put in place, you can see why they would want to focus on generating tax revenue!

However, a recent Chartered Institute of Payroll Providers poll of members identified that only 34% of companies are ready for IR35 when it is implemented in April 2021 and 12% will have no need for off-payroll workers due to the coronavirus. So, things are changing constantly, but our view is that contractors and recruitment agencies need to be ready so that they are able to react as they need to next year.

How has Coronavirus impacted IR35?

It was clear that when the decision was taken to delay IR35, it was due to coronavirus as that needed to be the focus for the country. However, the subsequent announcement on new investment schemes for the government will see thousands of new jobs in the construction sector, so they need to make sure that sufficient provision has been made for IR35 and construction workers have identified the best options for them.

As mentioned above, some contractors’ roles will no longer be needed due to the changes that coronavirus has bought about and it remains to be seen how the economy will recover and what this will mean for supply and demand of the workforce.

How many healthcare workers will be impacted by IR35?

The off-payroll reforms were introduced in the public sector in 2017 and the fear was that there would be a mass exodus of highly critical healthcare professionals leaving the NHS. However, it appears that IR35 hasn’t hugely affected the NHS workforce or resulted in any skills shortages.

In a recent HSJ article (here is the link, but you will need to register to view it), Chief Executive of the Recruitment and Employment Confederation Neil Carberry spoke about how agency staff fill 15,000 nursing and medical vacancies per quarter and given the likely urgency that agency staff will be needed to support the NHS throughout the winter months it’s essential that they make the right decisions for them when the IR35 legislation comes in to force in April 2021.

Many healthcare professionals may continue to benefit from working as a contractor through a reputable recruitment agency as it affords greater flexibility and can mean you get in to work much quicker than if you apply direct.

 

What are the options for contractors?

IR35 isn’t going away. Contractors may choose to search for a role as an employee, however for contractors who like the flexibility and variation of contract work (and for employers who like to employ people on a contract basis), it can still be a good option for all involved.

The first thing to do is find out if the contractor is inside or outside of IR35. There are tools that will help you to identify where they sit, but this article will help you to find out who is responsible for making the PAYE deductions.

If a contractor’s day rate does reduce through IR35, then it is always an option to increase their rate to cover the loss, especially if the skills are highly sought after and in demand.

Contractors can continue to work through their own Limited Company and outsource their PAYE to a payroll provider might be a good option to save them the admin hassle, or working through an Umbrella company who can manage all the legal and compliance issues facing contractors.

How does working through an Umbrella company alter your take-home pay?

To demonstrate the difference between using an Umbrella Company and outsourcing your payroll if you continue to work as a contractor through your own limited company is demonstrated below. As you can see with both examples, your take-home pay is SLIGHTLY lower using an Umbrella Company, however that is very quickly offset by the savings you will make if you don’t have to run your own Limited Company, such as accountants, insurances etc.

Using the umbrella payroll, completely removes the IR35 legislation as the worker becomes an employee of the umbrella company and is paid PAYE. They gain all the benefits of being an employee such as statutory payments (sick, paternity, maternity and adoption pay) paid for by the umbrella company, plus a workplace pension.

£16 per hour

Off-Payroll Module (Outsourcing Payroll)   Using an Umbrella Company
55 Days/Hours Worked 55
£16.00 Day/Hourly Rate £16.00
£880.00 Gross Rate £880.00
Margin Fee £20.00
£86.10 Employers NI £83.69
£3.95 Apprenticeship Levy £3.86
£789.95 Contract rate £772.45
£109.80 Tax (on 1250L code) £106.20
£74.87 Employee NI £72.77
£605.28 Net Pay £593.48

 

£600.00 per day

Off-Payroll Module   Eden Umbrella
5 Days/Hours Worked 5
£600.00 Day/Hourly Rate £600.00
£3000.00 Gross Rate £3000.00
Margin Fee £15.00
£342.06 Employers NI £340.25
£13.22 Apprenticeship Levy £13.16
£2644.72 Contract rate £2631.59
£817.36 Tax (on 1250L code) £812.16
£129.17 Employee NI £128.91
£1698.19 Net Pay £1690.52

 

 

How EdenGroup can help you?

 

We might not have a magic wand that can make IR35 disappear, but we do have a team of experts  at EdenGroup who can help you pay your contractors correctly.

What can we offer you exactly? We have two options that will help to ensure your business is fully compliant while alleviating that IR35 headache!

1: Outsource your contractor payments 

Outsource  your contractor payments to EdenGroup. Our expert payroll team can run your payroll on a weekly or monthly basis. Handled by a team of experts, we make the deductions and report to HMRC under your PAYE reference with your Off-Payroll Module. Simple as that!

2: Use an Umbrella employment solution 

This is an effective way to pay your contractors because we take care of all the legal and compliance issues. Find out more about the benefits of using an umbrella company to payroll your contractors here.

To find out more please get in touch with Beverley on 0844 686 8360 or email bstanding@edenoutsource.co.uk