As of April 2020, changes to IR35 (off-payroll working rules) will likely affect contractors working through intermediaries. From April 2020, medium and large organisations in the private sector will have to confirm the employment status of individual contractors, something which up until now, has been the responsibility of the contractors themselves (if working within the private sector).
IR35 looks set to cause issues for anyone not prepared or ill informed of the changes. At Moulds & Co accountants, we recognise that it’s vital for both contractors and contracting organisations to fully understand IR35 and our team in Wetherby is ready to offer advice and assistance to ensure our clients in Harrogate, Leeds, York and further afield make accurate status decisions.
Why is this a problem?
The issue for contractors is that, in the public sector where these changes came in in 2017, many firms have stopped engaging with contractors operating through personal services companies that lay outside IR35. Others have insisted that they will only work with contractors via an umbrella company.
What options are available?
Although time is limited, contractors still have a choice about how to react. They can become an employee of the contracting company, work via an umbrella company or ignore the changes and choose to work with more flexible clients. The last option mentioned is a risk though, as more and more companies seem likely to continue with IR35 in mind. Let’s look at each of these options in more detail.
Option 1: Becoming an employee:
This seems like a contradiction to why most people became contractors in the first place. Many contractors would have to leave existing projects and clients and effectively become full time staff. HMRC is encouraging this route, insisting that they will not investigate previous contracts prior to 6th April 2020, for anyone who decides to make the switch. If you do choose this option then you may need to close your limited company or put it in to a dormant state. For help in doing so, our Moulds & Co team can help make this as straightforward as possible.
Option 2: Working through an umbrella company:
This option allows you to keep your flexibility and all the freedoms of being a contractor – depending on which umbrella company you choose to work through – but could heavily impact on the actual money you take home. The reason for this is that you may be liable to pay a service charge as well as employment taxes.
Option 3: Continuing outside IR35:
As mentioned earlier, this is a bit of a risk because after April 2020 you may find your potential opportunities cut down significantly. However, there will likely still be many who are willing to continue hiring outside of IR35 so the most important aspect is ensuring that you are fully aware of the rules and adhere to IR35 every time you take on a new contract.
This can mean a bit more extra work and there is a lot to consider before choosing this option. To discuss this choice further and how not to fall foul of the new rules, speak to a member of the Moulds & Co team today on 01937 584188 to discuss it further.