As a Public Contractor, you are probably wondering what is IR35? How will it affect my business ? HMRC has introduced changes to IR35 recently called “Off payroll working in public sector”, It is a new change legislation which seeks to put tax liability on public sector employers who employ through limited companies or meet the definition of self-employment.It ensures that disguised employment is identified where a contractual worker fills a permanent position in a company yet does not pay the statutory tax and National obligations as a permanent worker normally would. As per HMRC, only business owners exposed to actual risks warrant dividends and not employees who use a limited company.
The legislation which will take effect as from April 2017 will see the IR35 status being calculated by the employer and not the contractor as has been the case in the recent past. In the event, the employer is of the opinion that the contractor is within the IR35 definition yet fails to report the same, he will be taxed as if he were the employee which will be done at source. the contractors will however not change and hence they will continue to enjoy the benefits and rights that go hand in hand with those enjoyed by salaried employees such as contributions to pension and holiday payments.
HMRC has come up with new assessments that ensure that engagements do not fall within the IR35. This self-administered test aims to determine if the contractor falls in the IR35. HMRC explain that persons who fall under the IR35 include persons who lack practice of having the work done though substitute resources while going to the office where they are instructed on how to do the work.In the event things are faulty at work, contractors will be forced to encounter the costs and replace the work without involving the client
As a public sector contractor, there are a few options that are presented to you so as to ensure that you do not fall within the definition of IR35. One of the solutions would be to join an Umbrella company.An umbrella company acts as a direct employer to agency contractors working under fixed-term engagements. Ganumbra is an example of a leading umbrella company in the UK.Being an IR35 free company, Ganumbra this is the future of public sector contractors and as a contractor, you should strongly consider being part of this company. Ganumbra provides its’ clients with fully IR35 free solution. They further note that companies will not fall outside the IR35 by following some of the presented ideas such as having an office at your clients’ place of work, having flexible hours, including replacement clause in your contracts among others. Ganumbra, however, provides solutions that ensure a hassle-free management of contractors affairs in a centralized manner.Among the services provided are; same day registration and set up, instant payroll batch, comprehensive employee benefits and uniquely tailored solutions as per your needs.It is also 100% HRMRC compliant. HMRC is intent on ensuring the implementation of this new law and the umbrella company is designed to meet this new change.
Public sector contractors will no longer have to take up the responsibility of determining their own IR35 status and go ahead to pay come April 2017. Additional taxes will be incurred by the employer if the contractor falls well within IR35. Contractors The client will be responsible for declaring if the contractor falls within or outside IR35. Organizations will now have to assess their contractors so as ensure they pay taxes accordingly to avoid the possible burden of the additional taxes and contributions.A period of 31 days will be given to organizations to respond to the requests from contractors working directly for the entity before they are declared liable to pay the tax.
Just like any other new legislation, IR35 will have its own outcomes and challenges in the implementation of the same.Public sector employers are already hinting a mass exit from hiring contractors through limited companies.This is as a result of the additional tax responsibility that comes with IR35 if the contractors are found to be within it.The legislation will not only affect contractors but the public sector in general and in turn the UK economic state. Fewer contractors will also avoid or completely disengage themselves from being in business with limited companies.The shift towards management consultancies is also expected. It is likely that due to the stretched human resource at HMRC, the implementation of the IR35 will cost the essential resources so as to determine the reality on the ground.This changes will also affect the agencies currently providing contractors and public authorities who also hire from off-payroll contractors.There is also a possibility of some contractors opting to scale their operations and moving to markets currently not affected by IR35.
Public sector contractors, however, can view the IR35 in a whole new perspective to mitigate the obvious negative impacts brought about by this new legislation.The best prompt action would be to join an umbrella company which is PAYE compliant.The umbrella company would act as a direct employer to contractors so as to ensure that they fall well within IR35. The legislation clearly states that the off-payroll rules do not apply in the event that the umbrella company employs contractors directly and not through intermediaries.However, for companies who do not employ directly the IR35 rules will still apply. Umbrella companies save contractors the tasking duty of filing for their own taxes, starting a limited company only to close it again in the event the contractor wishes to be at work for a limited time period.It also gives the contractor the option of outsourcing management hence one is able to prioritize their work.If as a public sector contractor you are sure that you fall inside IR35 an umbrella company would be a good solution.
This then leads to the question, which is the best umbrella company for you as a public sector contractor? http://ganumbra.com/blog/?p=129 provides you a brief insight into the best umbrella companies in the UK that you should consider to cushion yourself from the inevitable impact once the IR35 is implemented.Your journey has been made easier in preparing yourself for the future as a Public sector contractor.
By now you may be wondering , how would I save tax by joining a compliant umbrella company ? what would I do with the money saved up Limited company ? Please wait for our next blog article on this. There are several HMRC approved investments which can almost reduce your tax burden to nil legally and give you attractive returns. Would be happy to know your views on the article.