April 2017 saw the introduction of HMRC’s ‘off-payroll working’ rules for anyone taking on temporary contracts in the public sector. The new rules specify that the end-client is now responsible for determining the IR35 status of a contract, and HMRC expect most contracts expected to fall within IR35 or risk an investigation. At the same time, new tax rules have been laid down for those working in the public sector under IR35 but who continue to be paid through their personal service companies. Here, the agency or end client must deduct tax and national insurance, and pay the employer’s NI contribution before paying the net amount to the personal service company.
This leaves us with many unanswered questions about how VAT should be charged, what are appropriate day rates to charge given that the client now pays Employers NI, and how business owners are expected to run their business since there is no additional income to do so.
For these people, the umbrella company model provides independents with a much more stable and tax efficient way of running their business. An umbrella company is a company that employs freelance workers who may work on numerous different assignments, at various locations, either through agencies or directly for end-clients. The umbrella company enters into an employment contact with the worker and a service contract with the agency or end-client. The umbrella company will consolidate workers’ earnings and ensure the correct taxes are paid, so that the worker remains compliant and does not have to re-calculate their tax at the end of the year.
In short, this is now the only sensible choice for those still wishing to take on assignments under IR35 in the public sector, and remain independent of their end-client.
Are you working in the public sector and experiencing difficulty as a result of the new rules? Our team are happy to help you explore your options. Please get in touch with us directly via email or phone, or have a look in our Knowledge Zone for more information on umbrella company working.