IR35 Information Hub
The Government and HMRC are implementing changes to the IR35 legislation. We have put together a short guide to help you understand these changes and how you may be affected.
Last updated: March 2021
What is IR35?
IR35 is a set of tax laws that are designed to ensure all workers are paying the correct amount of tax and National Insurance contributions (NIC). There are a series of tests used to determine the tax status of contractors working through personal service companies (PSCs). These are not new laws; the upcoming changes have already been in place across the public sector since 2017.
As of 6th April 2021, companies in the private sector will be responsible for determining the IR35 status of workers. Only work completed on or after this date will fall under the new legislation. Any work completed up to and including 5th April 2021 will still be subject to the previous rules.
There are also some small but significant changes within the public sector, which will require the end client to send a ‘status determination statement’ (SDS) to the agency/vendor and the candidate. This is required if the role has already been declared outside IR35 and a detailed client-generated SDS has not previously been shared.
Who decides if my role is inside or outside IR35?
The end client is responsible for determining the status of your role. This is assessed on a case-by-case basis by the client in question.
What happens if my role is deemed inside IR35?
If your role falls within the IR35 rules, you will no longer be able to be paid gross into your PSC. Instead, you will be paid net with all applicable tax and NIC being deducted at source.
You can continue working via a PSC receiving net payments. However, if you prefer, you can choose to be paid via an approved umbrella company or be paid PAYE by Liquid Personnel. You will also be issued with a new contract.
How will this affect my pay?
If your role is deemed to be inside IR35, the applicable tax and NIC deductions will be deducted at source, with the net pay after these deductions being paid to you. This means everything that arrives in your account is yours without any further deductions.
After 6th April 2021, your pay rate will be displayed differently. Your rate prior to the changes includes the element of employer’s NIC at 13.8%, which you would have been responsible for paying to HMRC up until 5th April 2021.
Will this affect my pension?
When working via a PSC, you are not eligible to be enrolled onto a pension. This is the case whether inside or outside IR35. If you decide to change your payment method, the situation will vary depending on the method you choose:
- Umbrella: You will be offered access to a pension scheme if you qualify based on pension legislation. Your chosen umbrella company will advise you on their process.
- PAYE: Liquid Personnel is legally obliged to automatically enrol you onto our pension scheme after three months of working. Once enrolled, you can opt out of this scheme if you prefer.
What options are open to me via Liquid Personnel?
We aim to give all workers the flexibility to determine how they are paid. There are several options available to you:
- You can continue to operate via your PSC; your payments will have Tax and NI deductions made at source
- You can transfer to a compliant umbrella company
- You can transfer to Liquid’s internal PAYE payroll
These are all viable options and all three methods are IR35 compliant.
Working through an umbrella company or Liquid PAYE, you will be entitled to sick and maternity/paternity pay where applicable.
Your take-home pay should be very similar or the same whether you are paid PSC, umbrella, or PAYE. Irrespective of payment method, you will have access to twice-weekly payroll runs and support from our consultants.
I want to continue working through a PSC company. What happens next?
We will advise you if your placement falls inside or outside IR35 once this has been established by the end client. What happens next depends on your status:
- Outside IR35: No change to you. You will receive a ‘Status Determination Statement’ (SDS) from the client, with reasons why the role was determined as being outside IR35 legislation.
- Inside IR35: You will receive a new contract and all payments made into your PSC for work completed on or after 6th April 2021 will have the relevant deductions made at source.
I want to move to umbrella or PAYE. What do I need to do next?
If you wish to make either of these changes, please speak to your consultant who will be able to guide you. We will ensure that everything is in place in time for the changeover on 6th April 2021.
If you are interested in working through an umbrella company, your consultant will be able to provide more information on the umbrella companies on our Preferred Supplier List
Why should I continue working through an agency?
Working through an agency offers a range of advantages over permanent working. Even after IR35 considerations, in the vast majority of cases, you will earn considerably more than your permanent equivalents.
Other benefits include:
- Access to a wide range of opportunities across a large client base, including exclusive access to roles with our master vendor clients
- Flexibility on working hours, working locations, length of contract and type of work available
- Twice weekly payroll, allowing for fast and flexible payments
- With both umbrella and PAYE, you will receive access to benefits including sick pay and maternity/paternity leave
Who can I speak to for further information?
If you have questions about the options available to you via Liquid Personnel, please ensure you speak to your consultant, who will be happy to help. If you have further questions about tax, or about which working model would be best suited to your personal circumstances, we would recommend you speak to your accountant and/or an independent financial advisor.
What support is available?
There is a wide range of useful resources and support available from the government and HMRC, including factsheets, webinars and tools to help individuals and organisations decide if a contractor should be treated as employed or self-employed for tax purposes.
These resources can all be accessed via the gov.uk website.