What Are Your Options if You’re Inside IR35 After Off-Payroll Reform?

IR35

As April and the off-payroll reform get closer, we’re hearing from more and more contractors who have either been told that their client will determine their status as inside IR35, or that they’ve made a policy decision not to engage with PSCs after the reform comes in. This is obviously not an ideal position to find yourself in, but if it does happen, and you want to stay with the same client, what are your options?

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If you’ll sometimes be working inside and sometimes outside IR35, we’d suggest using a combined solution, like Orange Genie Complete, which will allow you to switch seamlessly between the two at no additional cost.

Unless your rate is uplifted, you will take home less money through PAYE

Whichever solution you choose, PAYE tax and NICs will reduce your take-home pay. In 2017 when the Public-Sector reform came into force, this left many contractors vulnerable to tax avoidance schemes, as they desperately searched for a way to protect their earnings, and many of those contractors now have serious financial problems due to the HMRC investigations and the controversial Loan Charge.

Unless you’re lucky enough to be in a position to negotiate an uplifted rate, you won’t take home as much money through PAYE and you’ll need to make appropriate preparations. Your accountant should be able to advise you.

It’s important to remember that you do still have options, even if your current client won’t engage with PSCs and isn’t willing to negotiate. You can search for alternative contacts, either with a client who is more comfortable with outside IR35 contracts, or a small private company where the determination will remain in your hands.

Agency PAYE

This is where you’re engaged directly by the agency, and they pay you via their own PAYE system. Your take-home pay will be roughly the same as it would be through umbrella employment. Usually, you’d be engaged separately for each contract, which means you’ll have limited employment rights while you’re working, and no rights at all when you’re not. This solution is only really viable for short-term contactors, who expect to complete one or two contracts and then move into permanent employment.  

Direct employment

It’s possible that one of your clients will offer you a permanent role as an employee in their organisation, either as a knee-jerk solution to IR35 reform, or as part of a deliberate review of their contingent workforce. If they’re keen to keep you working for them, the package offered could be quite advantageous.

In this situation, it’s important to consider the whole picture, rather than just following the money back into permanent employment. Most contractors chose contracting because the autonomy and flexibility that comes with it was important to them. If that is still the case for you, any offer of direct employment needs to be weighed against the prospect of losing that freedom.

Umbrella employment

As the name suggests, this is where you’d be employed by an umbrella company, who will occupy the same position in the supply chain as your limited company did – supplying your services to the agency or client. The agency or client will pay the umbrella, who will pay you as their employee.

This allows you the benefits of employments, while retaining the flexibility and freedom of contracting.

You can expect your take-home pay to be roughly the same as it would be through Agency PAYE, but there are some important differences:

  • You’ll be employed continuously for all your contracts
  • You’ll be entitled to sick pay, holiday pay and maternity/paternity pay
  • Your umbrella company will have to provide a workplace pension scheme
  • Depending on the umbrella you may be able to use salary sacrifice to contribute to your own chosen pension scheme
  • Depending on the umbrella you may receive additional employee benefits

If you have any questions of if we can help in any way please call our expert team on 01296 468483 or email info@orangegenie.com

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