What do changes to off-payroll (IR35) in the private sector mean for limited company contractors?

Changes to off-payroll in the private sector were scheduled to roll out in April 2020. However, after one of the most stressful and unpredictable years of all time, the amendments were put on hold for 12 months (Coronavirus pandemic).

Despite a few rumours that the legislation changes will be postponed again, it’s very unlikely. Therefore, we’ve decided to summarise the upcoming changes to off-payroll in the private sector – so keep reading!

What are the changes to off-payroll in the private sector?

The new rules are set to shake up the private sector. From 6th April 2021, private sector contractors will no longer be able to decide whether they’re inside or outside IR35. To put it bluntly – they are being stripped from this responsibility! Instead, the private sector organisation they work for must make an accurate IR35 assessment for each of their temporary workers.

At the moment, contractors in the private sector can determine their own IR35 status and pay themselves accordingly. As we all know, contractors who are outside IR35 and operate through a limited company are able to take advantage of tax breaks that make it the most tax-efficient way to operate.

Contracting through a limited company isn’t dead!

Genuine contractors shouldn’t have anything to worry about, but it’s no surprise there is an element of uncertainty in the air. Providing private sector organisations make a fair ‘outside IR35’ assessment, contractors are free to continue operating through their limited company and can continue to pay themselves with a combination of salary and dividends.

If your private sector client gives you an IR35 assessment and deems you as inside, you will no longer be able to benefit from contracting through a limited company. Being inside IR35 effectively means you’re working in a similar fashion to a permanent employee. Therefore, any assignments you work on that are inside IR35 will require you to be paid PAYE.

PAYE

Contractors inside IR35 are required to receive PAYE (Pay As You Earn), or have tax deductions made before receiving income to their limited company.

Some recruitment agencies will be happy for you to jump onto their payroll system and will pay you as if you’re completing work for them. They’ll invoice your client for the work you are doing. However, a majority of agencies prefer to outsource their payroll to umbrella companies – for a whole host of reasons.

Umbrella companies are not the bad guys and there are plenty of advantages of using one for your payroll. However, the decision should be entirely yours.

Top 10 umbrella companies

If you are interested in finding out more about umbrella companies, have a browse of our website. We have loads of information that’ll help you, from a detailed guide to how umbrella companies work, to information on how to select the best umbrella company for your circumstances.

We also have collated a list of our top 10 umbrella companies, and they’re all FCSA accredited. Choosing a compliant umbrella company is very important, and we recommend you only consider using umbrella companies that have obtained the prestigious FCSA accreditation.

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