IR35 giving you a headache? Here are some frequently asked questions about IR35 and the new rules to make your life easier.
IR35 can be confusing. We’ve compiled a list of questions we regularly receive from our candidates, along with information around the new IR35 rules. If your question isn’t answered below, please contact your recruitment consultant or your accountant for more information.
Please note, whilst Rapid Recruitment consultants will always do our utmost to find you the best assignment to suit your needs at the best possible rate of pay, we are unable to offer financial advice. Please seek professional advice from your accountant or tax expert to determine the best payment method for your situation.
What is IR35?
IR35 is a set of rules that aid HMRC in determining the tax and National Insurance contributions that should be made by people who are contracted to work for a client through an intermediary. This means people who work for a client through their limited company, a service or personal service company (PSC) or a partnership.
The legislation was introduced in April 2000 and is also known as the ‘intermediaries legislation’.
The idea of the legislation is to ensure that everybody who should be classed as an ‘employee’ for tax purposes, pays PAYE tax and National Insurance contributions as an employee would.
Contractors that would be classed as an employee under the legislation are often called ‘disguised employees’.
Types of Intermediary:
Personal Service Company (PSC)
The term Personal Service Company was actually coined in the wake of the IR35 legislation to describe the particular conditions under which IR35 would be applicable. However, there is no set definition of what constitutes a PSC. The below conditions would typically be classed as a PSC:
Limited Company
For IR35 purposes a UK registered limited company that may be flagged where the contractor:
- is a Director of the company
- is the sole shareholder of the company, or often split 50/50 with their spouse / partner
- managers and controls the company’s bank account
- supplies professional services to agencies, such as recruitment agencies, or directly to clients via the PSC.
Umbrella Company
For those who don’t wish to set up as their own limited company, umbrella companies offer an alternative. An umbrella company acts as the contractor’s employer, and then act as the intermediary between the contractor and the recruitment agency or directly to the client.
They will then arrange the payment for your work.
What are the April 2017 changes to the legislation?
From April 6 th 2017, the UK government changed the legislation so that, where IR35 applies, rather than tax and National Insurance contributions being determined by the intermediary, they should now be determined by the hiring party (either the client or the recruitment agency), and the necessary contributions be paid to HMRC directly.
The public body that receives the service from the contractor, from April 6 th 2017, is responsible for determining whether a contract falls within the IR35 rules, and will make the relevant deductions from the contractor’s fee. The public body may include an NHS Trust or Health Board, council office or other local authority.
Will I be affected??
The exact roles that will be affected by the changes is determined by the NHS Trust or Board where the worker is actually delivering the service. A new online tool has been developed by the government to help public sector employers calculate which agency workers they need to start deducting tax and NI contributions from at source.
Existing communications we have received are that all NHS agency workers currently paid by a recruitment agency, limited company or umbrella company, i.e. not paid as a PAYE employee, will be affected.
Rapid Recruitment recommends speaking to your accountant or umbrella company contact to understand if, and how, you’ll be affected.
We also request patience and understanding through what may be a difficult period for agencies and contractors and the changes bed in. Whilst we always try our utmost to ensure a smooth transition, there may be instances where we must work together for the best possible outcome.
I’m a limited company contractor, should I work through an umbrella company instead?
Moving to an umbrella company is not necessarily the right solution, though it could be. Once again, Rapid Recruitment recommends that you seek advice from your accountant or umbrella company representative to discuss the optimal payment model available to you. We have listed a number of options on the “Changes to Pay” section on our homepage.
Do the new IR35 rules affect all agency roles?
The new rules only apply to contractors supplying services to the NHS, so any work with in the private sector remains unaffected. So if you’d rather work in other sectors, speak to your recruitment consultant for more options of the types of contracts we can offer you.
This doesn’t mean you can no longer work for the NHS! Rapid Recruitment will continue to support the NHS with the best resources possible. These tax legislation changes are just that – tax legislation – and do not impact on your ability to choose who to work for.
Do the changes mean my take home pay will be reduced?
The new rules are designed so that, for contractors deemed to be working through an intermediary, the party paying the fees will deduct the National Insurance and PAYE contributions from the contractors pay packet to pay directly to HMRC on your behalf. This could mean that, if you weren’t previously paying National Insurance or PAYE, you may see a reduction in your pay packet equal to these contributions.
But I work through a recruitment agency, am I affected?
The changes will affect any worker providing services to the NHS who isn’t currently paid via a PAYE format. If you are paid by your recruitment agency on a PAYE basis then you will not be affected. If you are engaged via a recruitment agency on a limited company contractor basis, depending on the nature of the contract and assignment, then you may be affected,
So, does this mean there’s no point having my limited company?
There is no correct answer for this unfortunately. For instance, if you work multiple assignments then not all of them might fall within IR35.
RAPID Recruitment recommends that you seek professional advice from your accountant, who should be best placed to determine the impact these changes will have and the best approach for you to take.
What about working as a sole trader? Would that still fall under IR35?
IR35 affects all assignments where the worker is not paid under PAYE terms. As a sole trader you would still be ‘off-payroll’ and so would still be affected in the same way as a limited company contractor.
Am I locked to one agency or can I still work across agencies?
Again, this legislation affects only tax and National Insurance contributions and so has no impact on who you can work for. You can continue to work for the agencies you choose, and accept the assignments that suit you.
If I fall under IR35 for one contract, do all my assignments fall inside it?
No. The applicability of IR35 to a contract is determined on a contract by contract basis, not on the worker undertaking the contract. So for one contract you work with the NHS you might fall under IR35 and see contributions deducted from a pay packet, but for another in the private sector, for instance, you sit outside of it, and you will need to arrange your own payment schedule as before.
At the end of the year, HMRC will assess the amount of tax and National Insurance that you have paid throughout the whole year, across all your earnings, and determine at that point whether you have paid the right amount. If you’ve paid too much, you’ll be entitled to a refund, and vice-versa.
Who do I talk to if I’m outside of IR35 but see deductions being taken?
If, for a particular contract, you are not ‘within IR35’, then for that contract no tax or National Insurance contributions should be deducted from your fees. If you see deductions being taken where you think they shouldn’t, you should take this up with the body paying your fees. This will be the NHS Trust or Health Board to whom you are providing your service, as the determination of whether IR35 applies to a situation is determined there.
It appears, at this stage, that in this instance the deductions will continue to be taken and you will be required to appeal to, and claim them back, from HMRC.
How do I stay outside of IR35?
If you work under a limited company contract then the determination of whether a particular contract is ‘inside’ or ‘outside’ of IR35 will sit with the NHS Trust or Health Board into which you are providing your services.
They will make the determination and also deduct any contributions from your fees.
Who is responsible for these changes? Is it the recruitment agencies or umbrella companies?
These rules are nothing to do with recruitment agencies or umbrella companies; they are being imposed on the public sector by HMRC. Nor do agencies or umbrella companies determine whether IR35 applies to individual contracts. This is determined by NHS Trusts and Health Boards according to rules set out by HMRC.
So, is there any benefit of working through a recruitment agency now?
Yes! These rules have nothing to do with agency vs direct engagement; they’re purely about the payment method. Any contractor not engaged on a PAYE basis, whether engaged directly or through an agency, may be affected by the changes.
There remain many benefits to working through a recruitment agency. Remember, not only do we have PAYE roles available, we have access to roles right across the country, meaning that we can secure the best position for you.
Furthermore, because of the relationships we have with NHS Trusts and Health Boards nationwide, we’re more likely to be able to secure you better rates of pay than if you were to go it alone.
More choice. Better pay.
How do the changes affect my working relationship with my recruitment agency?
These changes shouldn’t affect your relationship with your recruitment agency. We will always work with you to find the most suitable assignments for your situation and do what we can to ensure a continued level of work for you, at the best possible rates of pay.
Depending on the circumstances, you may need to sign a new contract with your recruitment agency, but it is their responsibility to provide this new contract, where necessary.
When do the changes actually go into effect?
The new rules are in effect from 6 th April 2017. Importantly, this means that any payment made after this date will be subject to the relevant deductions, if IR35 is deemed applicable to your contract by the NHS Trust or Health Board.
This means that, if you are a limited company contractor, your invoice must be submitted, approved and paid by April 5 th 2017. All payments after this time will be subject to the new rules, even if the work was undertaken before this date.
A reminder of our daily payroll deadlines are below;
| Paid on Monday | Paid on Tuesday | Paid on Wednesday | Paid on Thursday | Paid on Friday |
|---|---|---|---|---|
|
Timesheets |
Timesheets |
Timesheets |
Timesheets |
Timesheets |
|
received Thurs |
received Friday |
received Monday |
received Tuesday |
received Wednesday |
|
09:00 – Friday 12:00 |
12:00 – Monday 12:00 |
12:00 – Tuesday 12:00 |
12:00 – Wednesday 12:00 |
12:00 – Thursday 09:00 |
Who do I speak to for more information?
If you believe that you will be affected by the changes to IR35 legislation, then please contact your Rapid Recruitment consultant on 020 3500 9782 at the earliest opportunity, to discuss your options and find out how we will be helping candidates through this time.
Please note that Rapid Recruitment, or our employees, are not able to offer financial advice. Please consult your accountant or umbrella company representative to discuss the optimal payment method likely available for your situation.