Self employed set to suffer needlessly under new IR35 reforms Feb 23, 2021Views: 360
The self-employed have had a rough year. Well, we all have, but they've had a particularly rough time. Although The Self Employment Income Support Scheme (SEISS) did its best to meet the shortfall of wages, company directors who take their incomes from dividends missed out on huge sums of money and are still feeling the pinch. Coupled with delayed tax payments now being due along with continuing financial difficulties due to Covid-19, the IR35 reforms still going ahead as planned is like a proverbial slap in the face for our poor suffering self-employed.
Quick recap: the IR35 reforms mean that, from April 6th 2021, off-payroll workers - so contacts, freelancers etc - will be treated as full time employees and businesses who use their services will be responsible for setting the tax status of contractors they hire to ensure they’re paying the same tax and National Insurance contributions as their “on-payroll” counterparts.
The problem is that this has led to a swathe of large companies in the tech and pharmaceutical industries, most notably Deloitte, placing a blanket ban on working with limited companies and personal service companies (PSCs) from April 2021 onwards. This is a seemingly knee-jerk reaction to ensuring that they remain compliant to the new IR35 rules - albeit by circumventing them entirely as contractors will have to work with such companies via employment agencies or umbrella companies.
The reason for using an umbrella company or the like is that it requires the contractor to cease trading as a limited company and become an employee of the umbrella company. As a result, the private sector firm is not required to determine the tax obligations and employee status of said contractors as they are already an “employee” of the umbrella company. A move as sneaky as my cat around an unattended roast chicken.
It seems a really clever and easy way to circumvent the rules and to lay the responsibility at someone else’s feet and for that I commend them. But besides hurting the self-employed who are now essentially banned from working as before with large companies, it is also hurting the companies implementing the ban as, besides the additional costs they will incur using these intermediary parties, they will be at the back of the queue for any talented contractors who will now look elsewhere to companies that will treat them more fairly. And rightly so!
Don’t get me wrong, it won’t be a walk in the park for businesses who want to play ball with the new rules. They’re messy and confusing and no one is trying to say otherwise. Determining the tax status of external contractors can be a daunting task and confusion may well lead to incorrect deductions and possible litigation which is literally last on the list of anything that anyone needs just behind a double root canal. But engaging with the reforms is worth doing and the advice is for contractors to encourage those with whom they do business to seek a supportive and structured solution instead of running away from it, which is in both parties interests.
Basically put in the work now and it will undoubtedly come back to you down the line. A compliance led approach underpinned by a quality compliance solution is easier to apply than most realise. And all the self-employed can then flip the bird at all those companies who decided to take the easy way out when they’re sniffing around their skirt tails in a few years once things have died down.
BrightPay is hosting a free IR35 webinar with industry expert Jas Jhooty, Director at emTax. Discover how to comply with the upcoming changes to the off-payroll working rules, and how they will affect your business and payroll processes. Plus, learn how you can obtain ‘outside IR35’ SDS rulings for as many contractors as possible to keep 'inside IR35’ contractors to a minimum and reduce costs from April 2021. Limited places available - click here to book your place now.
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Written by Aoibheann Byrne | BrightPay Payroll Software
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