Innova is offering companies hiring contractors a free 1.5 hour consultation to provide you with information and a review of your contractor workforce compliance ahead of the change in legislation in April 2020.
Full IR35 Audit
It is advisable to speak to an IR35 specialist about reviewing your contracts. Innova can offer both verbal and written contract reviews.
Preferential Payroll Services (2.5% rate if booked before September 2019)
Our fully-managed and cost-effective payroll service is tailored to your needs. We guarantee compliance with payroll and pension legislation and our skilled and experienced payroll team make sure you receive the best of resources available. We can deliver a fully managed payroll service with a dedicated account manager who will schedule regular reviews that measure performance against pre-defined SLAs and KPIs, irrespective of your payroll size.
Statement of Work (SoW) Services
Our end-to-end SoW solution includes an analysis of requirements, the scope of the project, implementation and delivery and crucially measurement. IR35 risk is offset, whilst enabling you to maintain full visibility, flexibility and control of a delivery strategy that is aligned to your business requirements.
Highlights from the recent Innova Business Breakfast covering IR35 changes and the legal implications for companies and their contractors.
1. What is IR35?
A piece of contractor tax legislation. If a contractor is treated as an employee then they will pay tax and NI on all earnings as an employee would (commonly referred to as “inside IR35”). If the contractor is genuinely in business on their own account, they will be eligible for certain tax breaks (commonly referred to as “outside IR35”). It only applies to contractors working through their own ltd company (also sometimes known as “PSCs”).
2. Who decides if IR35 applies?
At the moment, if the client is in the public sector, the client will decide and if the client is in the private sector, the contractor will decide. In April 2020, this will be changing so that unless the client is a small company, the client will have to decide in all cases. (Small companies must meet two of the following three criteria: Turnover not more than £10.2m, Balance Sheet not more than £5.1m, no more than 50 employees.
3. How will a client decide if IR35 applies to a contract?
HMRC, who are introducing this change in the law, have created an online tool, called the CEST tool. Hiring managers can answer the questions in the tool and the tool will tell them whether a contract is inside or outside of IR35 in 85% of cases. In the other 15% of cases where the tool doesn’t give an answer, the client will need to make their own decision.
4. Is it possible to just decide all contractors are inside or outside of IR35?
The final version of the law won’t be published until July 2019 at the earliest, so we don’t know for certain yet but it is very likely it will not be possible for a client to make a “blanket” determination covering all contractors.
5. What happens after a client has made a determination as to whether the contractor is inside IR35 or not?
They will have to tell the party they contract with (which could be a Managed Service Provider (MSP) or a recruitment agency) who in turn will pass that information on to the person below them in the chain. When that information reaches the “fee payer” which is the company that pays the contractor’s ltd company, if the contract is “inside” IR35, the fee payer must make payments next of PAYE and NICs rather than gross. If the contract is “outside” IR35, the fee payer will pay gross and the ltd company must work out what PAYE and NICs are payable (and then pay it) as happens now in the private sector.
6. (For Contractors) Will this affect my take-home pay?
If your IR35 status for your current contract doesn’t change, then no, this shouldn’t affect your take-home pay. If you move from outside IR35 to inside IR35 you will pay more PAYE and NICs. If you move from inside IR35 to outside IR35 (much less likely, but theoretically possible) then you will pay less PAYE and NICs.
7. (For Clients) Will this affect my costs?
This will depend on three things. Firstly, what types of contractors do you use at the moment? If you use a lot of highly skilled workers, it probably won’t affect you a lot. If you use a lot of medium-skilled workers, it’s likely to affect you more. (Low skilled workers tend to not operate through their own ltd companies and therefore this change in the law won’t affect them). Secondly, how do you treat those contractors? If you don’t manage the way in which they work and they provide services in a relatively stand-alone fashion from your business, probably it won’t affect you a lot. If contractors are managed on a day to day basis and are integrated into your business, probably it will affect you a lot more. And finally, how much do you need any specific contractor? Contractors with niche skill sets who would be difficult to replace will have more bargaining power than those whose skill sets are readily available in the market.