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How to guide clients through off-payroll working changes

With the off-payroll working reforms set to roll out into the private sector in April, accountants need to help their clients stay on top of the latest changes and guide them effectively through the mitigation strategies available to them.

9th Mar 2020
Commercial Production Editor AccountingWEB.co.uk
In association with
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The ripple effect of the off-payroll working reforms in the public sector is still being felt and has already given accountants an idea of what could be in store once the changes hit the private sector on 6 April.

With such an uncertain landscape, accountants need to stay on top of the latest developments. Only last week, the Chancellor revealed that there will be a soft landing for the first 12 months of the off-payroll working rules – although this only applies to penalties and not necessarily to the additional tax liability owed.

Therefore, it's even more important for firms to have conversations with clients affected by the reforms, as Intuit QuickBooks encourages in a new IR35 guide.

Speaking with clients at risk

As QuickBooks guide explains, IR35 rules should be considered for every engagement a contractor undertakes via an intermediary, so the most important step is to take enough time to identify which clients are at risk.

Fully understanding each client’s working arrangement will allow you to identify which clients operate through an intermediary, and which contracts may be considered within IR35.

This needs to be an ongoing process – whenever a client takes on a new contract, or sees a change in how they are engaged or in the nature of the work they are carrying out, you should reconsider whether you need to speak with them and review their employment status.

All contractors who might be affected by the off-payroll working rules need to be made aware of the key changes: workers who contract with a client indirectly through an intermediary, such as a personal service company (PSC) are subject to start paying broadly the same income tax and national insurance contributions (NIC) as any other regular employee.

But contractors also need to know that medium and large clients will be responsible for issuing an IR35 status determination statement (SDS) that decides the employment status of workers and whether a contract is within IR35. In such cases, the entity that pays the intermediary has to deduct income tax and employee NIC from payments and pay employer NIC to HMRC.

It is important to make sure that clients understand the difference between the contracts that are subject to the new reforms.  

Contractors also should be aware of the fact that, for engagements with small clients, determining IR35 status remains the responsibility of the intermediary.

Helping clients choose their mitigation strategy

Once clients understand how their take home amount may change should they choose to continue operating through a PSC, it is time to discuss with them the options they have from April. Some mitigation strategies will be better than others depending on each client’s working situation.

  1. A potential mitigation strategy for those who don’t want to make any changes to the way they operate is be to try to negotiate higher rates with clients and recruitment agencies if they want to continue engaging through their PSC.
  2. An alternative for those who were effectively already inside IR35 when working for a client is to join a client’s payroll. This comes with the added benefit of being entitled to statutory sick pay, maternity, paternity and adoption leave and pay and workplace pension rights.
  3. For contractors who were outside IR35 and who do not want to lose flexibility in their arrangements, paying an umbrella company a fee for its services might be the best course of action. The contractor would be then employed by an umbrella company, which will be responsible for operating PAYE and withholding NIC on payments. Umbrella companies also offer full employment rights and benefits.
  4. A fourth option is to remove the intermediary entity by going down the road of disincorporation. By closing down their PSC and engage directly with a client, the consideration of IR35 is no longer applicable.  However, the client will still have to consider whether the worker is correctly treated as self-employed or an employee.

Intuit QuickBooks’ IR35 guide outlines the latest on the new off-payroll rules and includes practical checklists and decisions trees to help contractor clients navigate the changes.