Reforms to off-payroll (IR35) rules in the private sector are due to come into effect in April 2021. They will mean that the responsibility for determining a contractor's IR35 status and ensuring the correct taxes are paid, will switch from the contractor to the end hirer.
2. Responsibility & Liability
As you can see, the new rules come with significant compliance and tax risks for end hirers and agencies. The agency is the first port of call for HMRC should a successful challenge be made to an 'outside IR35' status assessment.
Current Rules: The contractor is completely responsible for working compliantly and paying the correct taxes.
New Rules: The end hirer is responsible for IR35 assessment but the agency is liable in the first instance for the payment of unpaid taxes should HMRC successfully challenge the assessment.
3. How can Savant help?
Savant is offering a holistic solution - we can help you obtain insurance-backed assessments for a sample of or the whole of your contractor workforce and provide support on a continuing basis.
The least disruptive approach for agencies and end hirers will be to put in place strong assessment processes so that Professional Service Contractors (PSC) can continue to be used where appropriate and alternative contracting and payment options (ie PAYE/Umbrella) used for assignments which are inside IR35.
To facilitate this compliantly and with assurance to end hirers and agencies, we have developed insurance-backed IR35 assessments to provide assurance to end hirers in continuing to use PSC contractors under the new rules.
The Assessment Process
Inside IR35 Solutions:
Commercial risk - costs increase/talent is lost - Where contractors have been used to being paid and fulfilled using the outside IR35 limited company route and these change to having to be paid via PAYE, i.e. taxed as an employee, the cost of employment is greater and the contractor will face a higher tax bill on the income they receive. The table below represents a PSCs daily rate (outside of IR35) and how this is affected when moved to different Inside IR35 models.
|Inside IR35 Rate
(to match current limited take home)
|Inside IR35 Rate
(Contractor's rate subject to no uplift)
Outside IR35 Solutions:
If you wish to continue using PSCs, you can do so safely with insurance-backed assessments, subject to assessment tool judgement. This allows you to maintain competitive advantage where possible whilst also protecting against risk and liability.
If you have contractors who are deemed to be 'inside' IR35, or if you do not wish to take on the risk associated with PSC contractors, you can continue to benefit from a flexible workforce by using compliant, FCSA-accredited Umbrella service. This mitigates compliance risk and removes future liability.
'Outside IR35' decision
All potential contract roles will be assessed using a reliable, insurance-backed assessment tool, agreed between the parties. That way, all parties can be sure the 'outside IR35' determination is safe and the liability is insured.
'Inside IR35' decision
Pay workers via a compliant PAYE or umbrella model but ensure full visibility with all workers going through one compliant supplier engaged near the top of the chain.
5. What do I need to do now?
Please contact us to find out more and to discuss your options.