IR35 Legislation - April 6th 2021

With the IR35 legislation coming into effect on April 6th 2021, it's important to know how this change in legislation may affect you, whether you are a freelancer or employer.

The IR35 "off-payroll" rules will be extended to the private sector for large and medium-sized businesses from April 2021. 

What is IR35?

IR35 is a tax legislation which first came into force in April 2000 with the aim of preventing tax avoidance amongst workers who supply their services via an intermediary such as a Personal Service Company (PSC). It's also to ensure employers are also fulfilling their National Insurance Contributions (NIC). 

HMRC refer to such workers as disguised employees' as the freelance or contractor doesn't meet the HMRC's definition of self-employment and therefore the correct NIC and income tax isn't always paid correctly.

What are the changes?

The responsibility for operating the off-payroll rules will shift from the individual to the end client (employer), recruitment agency (Major Players) or another third party engaging with the contractor (umbrella company)

A client will be exempt if it meets two of the following criteria:

  • Annual turnover - does not exceed £10.2m 
  • Balance sheet total - does not exceed £5.1m
  • Number of employees - does not exceed more than 50

'Reasonable care' must be taken during the decision process to ensure the IR35 determination status is correct.

Once the determination status has been established, this needs to he communicated with all appropriate supply channels, including the worker. 

For assignments that fall within IR35, Tax and NIC will need to be deducted at source from the workers income by the 'fee payer' - either the employer, Major Players or the umbrella company. Dependent upon pay-type, employers HMRC liabilities are also taken into consideration.

How can we help?

We have developed a determination portal which will provide employers the utmost confidence when determining a role - this can be used for all roles, not just those advertised with Major Players.

We are one of the only agencies that offers multiple payment types to candidates (PAYE, off-payroll and umbrella), ensuring we can advise our candidates and clients on a case by case basis. Plus we can also offer a payroll service for contractors or freelancers, which have been engaged directly. 

Furthermore, clients and candidates will have access to a legal helpdesk which will provide support and a guaranteed turnaround time of 24 hours.

IR35 Q&A

Will IR35 stop or reduce companies engaging candidates through LTD companies?

If roles fall within IR35 then they will no longer be able to pay candidates as a LTD company unless it's through the off-payroll model. The off-payroll model is where you pay tax and NI on a day rate but is paid in to your LTD bank account instead of your personal account. Please note, holiday pay and pensions are not included. 

Will IR35 impact the number of freelance opportunities over the next 12 months?

No we don't think this will be the case. The industry is continuing to bounce back after Covid and the freelance community will continue to be needed across a wide variety of clients. There are lots of clients who are exempt as they are classed as small businesses.

Is it worth remaining as a LTD company or just change it to a sole trader setup?


Major Players, like many other businesses do not represent Sole Traders. This is due to sole trader insurances and liability. You can continue to work through your LTD company should your role fall outside of IR35 or with businesses which are exempt. For those roles that fall within IR35 you can work through the LTD off-paryroll model.

Should Freelancers who operate through PAYE or Umbrella companies have freelancer insurance?


If you are PAYE or Umbrella you will be insured by the fee payer (agency, umbrella company, client)

If a project is deemed outside IR35 can I continue to charge normally as a LTD company and through an umbrella company?

Yes

If you choose to be paid PAYE on the Major Players payroll, do you get charged the employment costs that you get charged through the umbrella co?

Major Players do not charge any additional costs

What if you’re working 100% remotely, using your own software to produce the work the client wants but you’re in control of the work hired for? Would that mean you are outside of IR35?


The role would need to be determined and this would therefore indicate how you are paid.

What if you make the same yearly contract every year with the same client? Will it be outside IR35 even if it fulfils all the outside IR35 conditions like substitution etc?


The role would need to be determined and this would therefore indicate how you are paid as IR35 has no bearing on longevity.

Can you opt out of the NI and just pay the tax, as that is not a legal requirement?


No you have to pay NI but on the off-payroll model you do opt out of paying pension and holiday pay.

So the more Inside IR35 Jobs I get, the less of a turnover my Limited Company makes?


Yes, this is because you are paying tax and source instead of in your annual tax return.

Does the length of an assignment affect the determination? ie. over 1 month? Or is it number of days per week? or is it down to how many clients you are working with at any one time?


No, the length of an assignment has no bearing on the determination. The determination is based on a number of factors which unfortunately is not black and white, hence why there are determination tools out there.

If a role is deemed inside IR35, can you just continue as before as a freelancer with an ltd, while applying a few changes to your own business?


If a role is determined inside IR35 and you want to continue operating through your LTD company, you will need to utilise the off-payroll model.

Could you ballpark the potential “loss” % of being inside IR35 for a limited company? 


Regarding any losses, you would need to speak directly with a financial adviser as everyone’s tax brackets differs.

How is holiday pay managed / collected? Is Major Players involved?


If you operate on the PAYE model via Major Players, we will accrue holiday pay for you and you can claim it within the holiday year

How long can you work for one client and be deemed a consultant? If you have more than one client are you still within IR35?


All roles have to have a determination against them. The amount of time you work with a client does not mean that the role will fall inside or outside or IR35.

Do umbrella companies take a cut on your payment?If yes what percentage?


Umbrella companies charge a single fee per week as an additional charge for processing timesheets.

Do you get holiday pay if you go through an umbrella company?


Yes holiday pay is accrued by umbrella companies and can be paid out at your request.

With ‘Supervision Direction & Control’ the client often does oversee how the work is scheduled and by offering a brief isn’t that having a direct control in how the work is completed? Wouldn’t that mean 90% design work instantly sits inside IR35?


All roles will need to be run through the determination tool to indicate the outcome.

How much annual leave would the umbrella companies give and how is that determined?


12.07% of the Gross Pay determined by the Umbrella company.

Is it worth being a freelancer anymore? Should you just insist on fixed term contracts?


Absolutely! The market is really buoyant at the moment and certainly ramping back up after the impact of Covid. There are many different opportunities out there for freelancers. Fixed Term Contracts are definitely an option but only if the client are willing to go down this route too.