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IR35: How engagers are minimising risk

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Following the publication of the draft legislation for the off-payroll rules to apply in the private sector, those who engage contractors via a personal service company are starting to consider how they will proceed when those rules take effect in April 2020.

5th Feb 2020
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For those engagers who believe their contractors will be caught under IR35, there appears to be reluctance by both parties to bring the contractors on to the payroll.

However, the contractors could be concerned that this will leave them exposed to additional tax retrospectively.

To avoid absorbing contractors on to their payroll, some engagers are leaning on agencies and umbrella companies to undertake the formal engagement of the contractor, and to deal with the payroll and other employer responsibilities.

Taking this approach leaves the end-client engager at risk if the agency given this responsibility (the ‘intermediary’) fails to operate PAYE and NIC correctly on payments made to the contractor.

Therefore, the end-client should consider what process it will adopt to minimise any possibility of failure by the intermediary to comply with the rules. It may be difficult to set tests which can give full comfort to the engager without leaving an element of risk.

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Replies (10)

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By Payroll Pete
05th Feb 2020 10:26

How engagers are minimising risk? Blanket bans on PSCs.

Engagers are leaning on intermediaries as well - I know of one bank who gave all their contractors the choice of go umbrella or go home, and then forced their consultancies to do the same with their contractors.

Thanks (3)
Replying to Payroll Pete:
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By C Graham
05th Feb 2020 14:02

I know of another just recently that had a whole dept of contractors - and lost them in almost a day because they refused to deal with the IR35 problem. A problem it is.

IR35 was and is still a crazy idea. No one actually benefits.

It has cost HMRC more than it ever made in their failed legal cases. As antiquated as being locked into long office leases compared to co-working flexible spaces.

Companies need flexibility without employer obligation - contractors want flexibility at the price of losing employment benefits.

Thanks (4)
Replying to Payroll Pete:
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By silverghost
06th Feb 2020 17:35

This week a PSC contractor client, who had worked on systems in the banking sector, had a bank ring him to ask if he was available and how much he would want. He cranked up his daily rate by 40% to allow for umbrella costs - this being the only way they would engage him. They said yes.
Clearly they were having trouble in obtaining contractors - exactly what happened in the public sector. It won't be too many months before the extra costs persuade them to take a different view on IR35.

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By ireallyshouldknowthisbut
06th Feb 2020 09:14

We have found almost all of our contractors are getting fired, and rehired on new contracts under IR35 on a blanket approach.

Which I guess is what the government wants, but there are lots of my clients who I would have said are outside of IR35 getting caught up in this over-reaction from business who don't understand IR35 and not even bothering to assess it.

Some of the net to nets I have seen have been shocking. Yesterday I saw one where the guy on £150k was given a full PA in the comp! They couldn't get the ER's NI right either, and were deducting expenses.

Thanks (1)
Replying to ireallyshouldknowthisbut:
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By C Graham
06th Feb 2020 10:06

But are they getting full employee rights (paid holiday, sickness, pension etc) because this is simply a breach of their rights if they are treated like employees for tax but not for the other benefits? let along they probably still keep their PSC running

Thanks (1)
Replying to C Graham:
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By Payroll Pete
06th Feb 2020 11:52

Standard umbrella treatment - deduct holiday pay, and then give it back, statutory sick, basic auto enrolled pension (which they can back out of after a week)- all deducted from the contractors gross (old) rate.

So they lose out by having to pay full NI, employers NI, apprenticeship scheme levy.

Thanks (1)
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By C Graham
07th Feb 2020 12:41

inside IR35 = not having your cake and not eating it

Thanks (1)
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By C Graham
07th Feb 2020 12:41

inside IR35 = not having your cake and not eating it

Thanks (0)