If you are a PSC Limited Company contractor providing your professional services to a client or a business owner that engages with freelancers and contractors and need some guidance in navigating the upcoming April 21, IR35 rules.
1. NEW IR35 Rules: (6th April 2021)
• End client/agency is responsible for IR35 status.
It is your end client or engaging entity, like an intermediary or agency fee payer. That has to determine the IR35 status of a contract with you, the contractor.
In order to determine the IR35 status of a contract, a status determination.
• Status determination statement (SDS) is required.
A status determination statement is required which we will cover in the next section.
• New rules apply to private and public sector
New rules apply to all public & private sector and clients who are not classified.
2. Obtaining A status determination Statement (SDS)
In order to obtain a Status Determination Statement, your end client or intermediary fee payer will need to use an appropriate and require your input.
HMRC’s CEST tool has been developed by, none other than HMRC. And some end clients may suggest this tool is used.
However, and in our option, it is questionable whether the HMRC’s CEST tool is yet fit for purpose or even impartial.
As an alternative, we recommend Qdos. Now we are affiliated with Qdos so you are aware. But we have done so for a good reason, and that is we believe they impartial and more HMRC’s CEST tool.
Not to mention the in-depth knowledge and experience they have in IR35.
I remember you may be starting a new contract in which case the chances are your end client will need to make a status determination before this date, particularly if the contract assignment is expected to run past this date.
3. How Should You Operate Inside IR35?
If your contract assignment has been determined inside IR35, then you may have a choice as to how you wish to operate for this particular assignment as follow.
• Use your existing PSC limited company
• Use an FSCA approved umbrella company
• Use your agency/intermediary’s own payroll solution.
• Explore other options.
Or finally, you have maybe given some other option. Now, the first thing you need to check is whether your end client or intermediary.
• Does your end-client insist on using an approved umbrella solution?
Insist upon you using an approved umbrella solution, whether one on their master services list on their own payroll solution.
And if this case, then you won’t have a choice in the matter, which leads to the question, what should you do with your PSC Limited company? Well, there is no blanket or linear answer to this and a lot of thinking circumstances and outlook of the future.
Stary tuned for our section, what can you do with your limited company, if you determined inside IR35.
4. What’s the average difference in taxation?
I know that one that you will want to explore should you be in the position of being provided different rates and options by your client or intermediary, or just wants to know how much more tax or national message insurance you’re likely to pay inside IR35 compared to outside IR35.
This could help you negotiate a fee rate to help you determine a suitable take-home pay.
It’s fair to say that if your assignment is determined inside IR35,
Your average rate of tax and national insurance combined will be higher depending on your revenue levels.
To do a quick and easy comparison, we recommend an online calculator.
You will be thinking about negotiating a rate or fee that party or wholly compensate you for additional taxation, and national insurance in order to achieve a take-home pay similar to if the contract fell outside of IR35.
5. How can you stay outside IR35?
Now, this is a very pertinent question. And we have been asked this question numerous times.
In short, there is no magic formula here, and we know it’s not what you want to hear, but it’s reality.
However, if you want to stay outside IR35 understandably then the following is what you probably should consider. Number one is to contract for a small company under the definition of the companies act 2006.
Now HMRC has articulated that if an end client is based wholly overseas, then the new IR35 rules will not apply.
However, if your client has any presence in the UK such as a subsidiary, then the new rules could apply.
Work with your end client to structure your working arrangement where the substance of your relationship will point you outside of IR35. But this needs to be genuine and not a contrived arrangement just to avoid IR35.
And this really does depend upon your client or intermediary too. After all owners from April 2021.
They are probably under pressure too if they get the status determination wrong by not taking reasonable care in their assessment of an SDS.
6. Schemes offering 80-90% take-home pay
We want to optimize and minimize your tax bill. Now, we’re not here to judge our schemes or suggest or provide validation whether they are right or wrong but to help you make an informed decision on them.
First of all, the government introduced IR35 legislation and their primary objective was to supposedly level the playing field between contractors who behave like employees, but pay taxes like the self-employed at lower rates and employed folk who pay income tax and national insurance at higher rates.
So, if a scheme comes along promising you take-home pay rates similar to those, you could have achieved through your limited company outside IR35 or if not better then.
So, for the scheme is promising you 90% take-home pay, does this even add up?
There is recent history with EBT known as the employee-based trust disguised remuneration schemes.