Despite little coverage in the mainstream press, the changes to public sector IR35 rules apply from today.
The changes undoubtedly will see an increase in umbrella contracting, as agencies and public sector bodies attempt to head off the responsibilities of assessing IR35 status and calculating and operating deemed payments.
As of 6th April (today), limited company contractors can no longer decide and declare for themselves the IR35 status of their contract. This decision is now down to the public sector body they are working for.
It is likely that many more limited company (also referred to as Personal Service Company or PSC) workers in the public sector will be “caught” by IR35 and the party paying them will have to operate “deemed payments”, i.e. deduct the same amount of tax and NI as they would for an employee.
This change to what the government call “the off-payroll working rules”, together with the removal of the 5% tax-free allowance for IR35-caught companies in the public sector, means that after April the take home pay between PSC and Umbrella will become very similar.
The Freelancer & Contractor Services Association (FCSA) is calling for agencies and umbrella companies to work in partnership to ensure clarity regarding contractors’ gross pay rates.
With more agencies and contractors turning to umbrella contracting as a viable payment method in the face of the changes to IR35, we thought we would clear up any confusion about how legitimate umbrella companies actually work:
Julia Kermode, CEO of the FCSA, stresses the importance of good communication throughout the supply chain.
She said: “We want to encourage agencies to work with their umbrella firms on calculating the impact of employers NICS, the assignment rate and the resulting gross pay rate for contractors….we want to get away from the perception that umbrellas are “baddies” who just want to take their cut and deprive the contractor of their hard-earned money. Compliant umbrellas are a valuable part of the supply chain and a relationship between contractors, umbrellas and recruiters should be seen as a true partnership so that clients benefit from the workforce they need without any misunderstandings around pay rates, and so that contractors know where they stand”.