As it stands PSCs have liability for deducting tax, regardless of whether the assignment is inside or outside of IR35. From 6th April this liability, where a PSC is deemed to be inside IR35, will pass to the employment business/agency – so all PAYE and NI contributions. Where a PSC contract is deemed to be outside IR35 the situation remains unchanged, with full liability for contributions remaining with the PSC itself.
The point to note here is that the end client (i.e. the local authority) will be responsible for determining your IR35 status and passing this information to your agency.
Q. Is this new legislation?
A. No it isn’t, IR35 has been around since 1999 but a series of reforms were announced in the Autumn Statement last year that has resulted in a change in liability for tax & NI contributions to the recruitment agency for temporary assignments and the launch of a new tool to be used to determine whether contractors are inside or outside of the legislation.
Q. How will I know if I am inside or outside of IR35?
A. The end client (i.e the local authority or any other public sector organisation subject to the FOI Act) will determine your job status & this decision will be passed to your agency to relay to it’s workers. The long awaiting HMRC tool, designed to give contractors and hirers HMRC’s view on whether IR35 applies to an assignment, was released yesterday (www.gov.uk/guidance/check-employment-status-for-tax). Although publicly available, the tool is in it’s BETA form so still subject to change based on feedback received over the coming weeks.
Many clients have made IR35 status decisions in advance of the tool’s release on a per job category basis. Following numerous conversations Caritas has had with its clients and/or Managed Service Providers (e.g. Comensura, Adecco etc.) on behalf of their clients, the trend emerging is that the majority of clients are taking a cautious position assuming that Social Workers and social work Managers are inside IR35. Some clients have confirmed that they will be setting up a ‘challenge process’ for individual contractors who believe their role is an exception falling outside of IR35. These clients will likely require a copy of the completed ESS tool (most requiring the tool to be completed by the contractor with their line manager) with an ‘outside IR35’ result from the contractor to take the next steps in assessing the individual’s claim.
Q. What If I work through an Umbrella or via PAYE
A. It is important to point out this will not affect contractors working either PAYE or through an Umbrella.
Q. Can I complete the ESS tool?
A. Yes everyone has access to the tool now in it’s BETA form on the HMRC website. When you first log on to the ESS tool it asks you to confirm if you are a worker, end client or an agency. It then takes you through the same question sets but the language is relevant to the audience. The questions focus on the key areas you would expect; for example supervision direction & control, substitution and ‘business setup’.
Q. What are my payment options if I am found to be inside IR35?
A. Broadly, you will have 3 payment options: PAYE (paid directly by the agency on a reduced hourly rate), Umbrella (paid by the umbrella provider on your current hourly rate following deductions) or remain as a PSC (tax & NI would be deducted by your agency before payments are made to your PSC). There is no way of avoiding PAYE and NI contributions if you are working inside IR35; if you chose to continue working on this basis, and going on the books as a PAYE contractor is not your desired option, then Umbrella Companies seem to represent the best solution.
Q. I have more than one job, and do assessments does this affect me?
A. Each job you work for will need to be assessed independently as it is possible to fall inside IR35 for one role and outside for another. If your assessments are commissioned and ultimately funded by a public sector body it will be subject to the tool. i.e. a Form F assessment for a private fostering agency, or working for a charity funded by a public sector body.
Q. If it is decided I fall within IR35, will I be entitled to all benefits of a permanent employee?
A. Unfortunately, if you are working through a PSC, you would not be entitled to all benefits of a permanent employee. However, if you work via an umbrella company, you would have some employment rights, which do vary depending on which umbrella company you work through.
Q. Can I work via an offshore umbrella company?
A. If you work via an overseas umbrella, we will deduct UK PAYE and National Insurance ahead of remitting any funds to the Umbrella. As such, it is unlikely to be economically viable for you.
Q. What tax will be deducted and how will I know what has been deducted?
A. We await further information from HMRC, but deductions would show up on your remittance.
Q. Can I still work via a PSC if I fall within IR35?
A. Yes you can still work via a PSC but the correct tax and NI will be deducted at source by the agency before the funds are remitted to your PSC.
What do I do now?
If you are unsure regarding whether your assignment is considered to be inside or outside of IR35, please feel free to contact your Consultant to discuss this further. Unfortunately not all end clients have communicated their position yet, but we are actively chasing them to ensure you have plenty of time to make decisions regarding payment options and/or whether you feel you have a legitimate challenge.
Caritas has appointed a partner organisation who is qualified to offer free payment comparison advice (PAYE Vs Umbrella Vs PSC) specific to your individual circumstances to enable you to understand what your earnings post-6th April might be.
Is there any useful reading on this subject?
The HMRC actually use the role of Social Worker as one of their examples. Click below to read about ‘Silas the Social Worker’ to give you further insight.
If you would like to arrange a call to receive no obligation financial advice, or you would like to discuss your circumstances with a member of the senior management team at Caritas, please email IR35queries@caritas-recruitment.com (this inbox is monitored from 8.45am – 5pm weekdays) or speak to your Consultant who will facilitate this for you.