As the businesses are disrupted due to the covid-19 crisis, the government had to postpone many reforms and the changes to IR35 which was due in April 2020 was postponed until next year. The last minute changes were welcomed by many contractors and key workers, however some contractors in the public sector still had to face some issues.
This reform is to ensure that the contractors who are working as self-employed and the ones who are working as an employee pay the same amount of tax and National Insurance to ensure there is no tax avoidance.
As everyone is tight on cash in some way or the other, it gave amore time to the contractors who are working outside IR 35 to still continue to do so because if they are assessed as being inside IR 35 their take home pay will decrease. This can be compensated by an increase in the rate of the contractor which is unlikely at the current economic state our country is in.
What does inside and outside IR35 mean? If you are inside IR 35 the relationship is between you and the employee is that of the employment and the employment taxes will be deducted at source. Outside IR 35 means that the taxes will not be deducted at source and you will be treated a self-employed. The changes which will now be implemented in April 2021 would mean that the employment status will be determined by the end client and not the person themselves to avoid tax evasion.
The extension of the changes to the private companies is delayed which means that the personal services companies in the private sector will remain responsible for the determination of the IR 35 status of their work meaning they will assess whether they can work as self-employed or they can work as an employee. The small and medium companies will however remain unaffected.
A contractor, who is working for an IT consultancy firm was happy with the delay. As he was working through a personal services company. However, because of the current economic situation he is considering whether it would be worthwhile keeping the limited company?
Well, there is no one definite answer but you definitely can keep your limited company even while you are working outside IR 35. If you choose to keep your company you will have to pay all the taxes for example PAYE and NI and won't get the employment benefits as well. However, if you have two streams of income and if you think there is potential growth you should definitely consider keeping your limited company. If you are working through personal services companies or the umbrella companies you will be in a position to take the advantage of the Furlough scheme as it is extended to those who are working through personal services companies, umbrella companies.
There are some disadvantages for the individuals working through the umbrella companies are referred by the government as contingent employees they are being taxed as employees, however they are not employees for the employment purposes that means the public sector is not able to reclaim these costs through job retention scheme. The individual contractors are also not eligible for support under the self-employed income support scheme.
If you need technical advice on IR 35, determination of IR35 status you can contact Taxaccolega, based in Croydon and south hall at 020 8127 0728 and we can provide you will accounting services at reasonable prices.