IR35 (Intermediaries Legislation) is going to be big in your world. The question is how?
There is no doubt that from April 2020 the Off-Payroll IR35 legislation will create plenty of uncertainty. There will be both threats and opportunities for your business. We’ve seen it before when the IR35 rules were applied to the public sector in 2017. Thousands of Limited Company (PSC) contractors were displaced and in need of an alternative pay vehicle.
At People Group we offer a range of payroll services, optimised to help you retain talent and to realise previously unseen efficiencies to help minimise any impact of IR35. Find out more about IR35 below or get in touch to see how we can help.
Watch our 3 minute video for a brief overview of IR35 and its impact for your business.
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What is IR35?
The Intermediaries Legislation has been in force since 2000. It was created to take away the tax advantages of individuals providing services through a limited company who are not strictly in business of their own account. In other words, the rule is aimed at so called ‘disguised employees’ – people who are providing a service to one client and whose working practices mirror those of a traditional employee.
However, it’s only in more recent years that the government has given the legislation real teeth.
The government clamped down on ‘off-payroll working’ in the public sector in April 2017. Public sector clients became responsible for working out whether their workers were caught by IR35. Any workers subject to IR35 would have to have PAYE tax and NICs deducted at source. To help employers and workers decide if IR35 might catch them, the government introduced an Employment Status Test to mixed reviews.
Payroll options for contractors caught by IR35
There are the three key options available:
Bring contractors in-house. This option assumes your contractor would be willing to forgo the tax advantages enjoyed as a self-employed contractor. The upside is that you retain your talent. The downside is that you are adding to your employer responsibilities by way of legalities and insurances etc.
Engage an umbrella company for ‘caught’ contractors. This would preserve headcount but there is a cost implication. Higher agency costs, lower gross pay, more tax and lower net pay are all unavoidable by-products of an umbrella company compared to a private limited company.
Partner with a Professional Employment Organisation (PEO). This model is built around the HMRC recognised joint-employment method and carries a multitude of benefits. The PEO becomes the ‘employer of record’ and takes on all the usual employer responsibilities leaving your business to carry on using your contractors without adding to your employer liabilities.
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