What does IR35 mean for your business?

What does IR35 mean for your business?

Presentation by Lee Manning - Partner at Raffingers Chartered Certified Accounts

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Financial consequences to agencies from April 2020

IR35 – Presentation by Lee Manning, Raffingers

Options for the contractors after April 2020 Options for the contractors after April 2020: 1. Stay as a PSC 2. Go to an umbrella company 3. Go on payroll of the agency

IR35 – Presentation by Lee Manning, Raffingers

1. Stay as a PSC

• Might not be an option if inside IR35 • If outside IR35 then this is the best option • Make sure CEST completed correctly as agency taking all the risk • Cannot make a blanket assessment of all contractors

IR35 – Presentation by Lee Manning, Raffingers

• Currently they charge worker an admin fee from a flat £5 pw to 4% of the payroll

2. Go to an umbrella company

• They also charge worker Employment Costs (employers NI, apprenticeship levy, employers pension costs) • They pay the worker a higher hourly rate than if employed directly by agency or being employed directly. The higher hourly rate is then offset by these additional charges so the contractor needs to be aware of their new take home pay • Worker will normally receive money off reward schemes •

IR35 – Presentation by Lee Manning, Raffingers

3. Go on payroll of the agency

IR35 – Presentation by Lee Manning, Raffingers

• As an umbrella company but without the additional admin and employment costs but agency paying lower hourly rate • Most agencies do not want the extra admin burden of running a large payroll but feel obligated to offer this as an option •

Cost comparison if PSC caught by IR35 and now needs to go on payroll Example 1: currently paying PSC £1,500 per week and the PSC deals with all the tax.

From April 2020 PSC caught by IR35 and the company is taxed as an employee then the agency would pay the following based on paying the same £1,500 weekly payment: Cost

Notes

£1,500

£37.50 per hour 40 hour week

PSC

£938

Worse off by £562

HMRC

£746

PAYE £456 (20%/40%) EES NIC £106 ERS NIC £184 (13.8%)

Total cost to agency

£1684

Worse off by £184

Weekly Payment

IR35 – Presentation by Lee Manning, Raffingers

Cost comparison if PSC caught by IR35 and now needs to go on payroll Example 2: currently paying PSC £600 per week and the PSC deals with all the tax.

From April 2020 PSC caught by IR35 and the company is taxed as an employee then the agency would pay the following based on paying the same £600 weekly payment: Cost

Notes

Weekly Payment

£600

£15.00 per hour 40 hour week

PSC

£476

Worse off by £124

HMRC

£184

PAYE £72 (20%) EES NIC £52 ERS NIC £60 (13.8%)

Total cost to agency

£660

Worse off by £60

IR35 – Presentation by Lee Manning, Raffingers

Cost comparison if PSC caught by IR35 and now needs to go on payroll Example 3: currently paying PSC £2400 per week and the PSC deals with all the tax.

From April 2020 PSC caught by IR35 and the company is taxed as an employee then the agency would pay the following based on paying the same £2400 weekly payment: Cost

Notes

Weekly Payment

£2400

£60.00 per hour 40 hour week

PSC

£1556

Worse off by £844

HMRC

£1152

PAYE £720 (20%/40%) EES NIC £124 ERS NIC £308 (13.8%)

Total cost to agency

£2708

Worse off by £308

IR35 – Presentation by Lee Manning, Raffingers

Solutions if caught by IR35

IR35 – Presentation by Lee Manning, Raffingers

1.Need to increase the contract rate with client to compensate for the employers NIC

IR35 – Presentation by Lee Manning, Raffingers

• Is this really an option?

• If this does work will the PSC be happy to be taking home £562 less in their pay packet each week?

2. Agency Payroll

IR35 – Presentation by Lee Manning, Raffingers

Need to negotiate with the contractor new rates. Difficult to calculate as each PSC needs to be looked at individually due to: • Corporation tax being paid by the PSC, could be using losses etc • The tax and tax rate being paid by the shareholder, do they have other income?

• The amount of expenses being put through the PSC • The amount of dividends being drawn by the shareholder or is the profit being left in the company?

• IF DO NOTHING AND PAY THE SAME RATE OF £1,500 WILL BE WORSE OFF BY £207 PER WEEK

3. Umbrella Payroll

IR35 – Presentation by Lee Manning, Raffingers

• Same as Agency payroll but without the admin headaches of running your own payroll

What should you be doing now?

• Reviewing all your PSC contractors to see if they are caught by IR35 • Help your contractors give them an option of going on agency or umbrella payroll and let them know they will be worse off in the short term as tax now being deducted at source rather than being paid by the PSC and on self assessment every July and Jan. • Review each contract and renegotiate with both the worker and client well before April 2020

IR35 – Presentation by Lee Manning, Raffingers

Questions

Thank You Lee Manning 0203 146 1604 l e e. m a n n i n g @ r a f f i n g e r s. c o. u k @raf fingers /raf fingers w w w. r a f f i n g e r s. c o. u k