The UK has the largest temporary labour market in the European Union, estimated to be in excess of 1.5 million workers. This has given the UK economy unique flexibility and created a distinct type of worker. Companies and the public sector rely on the availability of temporary workers to fill short-term requirements, an arrangement that has suited both them and the worker for many years.
Recent tax changes have, however, made this traditional relationship more difficult; in particular, changes to the tax laws known as IR35 have removed some of the tax advantages enjoyed by certain types of worker.
How might this affect me?
Many individuals choose work on short-term contracts either on a full-time or part-time basis. Recruitment agencies exist to match companies that need positions filled (or cover due to staff shortages), with suitably qualified individuals. The agencies can then:
1. Act simply as an introducer, and leave the client company to pay the worker directly.
2. Act as the employer of the temporary worker, and charge the client company for the work performed, paying the individual under PAYE.
3. Act as a service supplier to the client company, and pay an intermediary company for the services (work) provided by the individual worker.
Under this arrangement the worker has a limited company that signs a contract with the agency, and it is this company (the ‘intermediary’) that pays them.
By carefully structuring this company, a worker can gain significant tax advantages.
IR35 looks at the temporary worker to determine whether, on balance, they are working as a self-employed contractor or as an employee. If it is decided that they are effectively an employee of the client company then the worker must make a payment equivalent to PAYE.
What should I do?
It is important to remember that HMRC have not removed the option to work through a limited company. What IR35 says is that where a contractor works in a way that is like that of an employee of a client company they will be caught by IR35 and have to pay tax on the equivalent basis as an employee (making what is called a ‘deemed payment’ at the same amount as PAYE).
Whether you will be affected by IR35 depends mainly upon two factors:
1. the wording of the contracts that you work under;
2. the way you actually work.
There is no simple test that can determine whether you fall within IR35 or outside it. There are, however, some straightforward measures to help determine your status:
- Remember that the advantages of limited company working are designed for true temporary workers. You, your agency and the client must be clear that you are working under a short-term contract for your own financial benefit, and not with the intention of you being or becoming an employee of the client company.
- Ensure you always present yourself as an employee of your company.
- Do not become a proxy employee by taking staff passes or staff parking permits. Where a client company issues security passes, ask that they clearly reflect your status as a temporary worker / contractor.
- Do not become involved in discussions about issues relevant to full-time employees – particularly pay and benefit related issues. Remember, to the permanent members of staff you are working on a self-employed basis and not as part of the organisation that employs them.
What happens if my status changes?
If you believe that the changes in the way you work are making your status more like that of an employee it is important you act immediately. Contact both your agency and us, and explain why you believe there has been a change. It may be that simple amendments to your work can be made to restore your independent position.
You may also find that changes of placement bring changes of status; it is possible to have a series of placements, some where you will be effectively an employee and some where you will be self-employed. It is possible to keep working through your limited company in these situations, simply changing the balance of salary you receive to ensure you are making the necessary PAYE payment.
Contract reviews
QDOS Contractor and 34Square are the leading experts in IR35. Their contract review services are fast, comprehensive and will always give a clear ‘pass’ or ‘fail’ with indications of how your contract can be improved.”
Contacts:
- QDOS: 0116 269 0999 or freelancer@qdoscontractor.com
- QDOS: https://qdoscontractor.com
- 34Square: 01344 534346 or support@34square.com
- 34Square: https://34square.com