Explanation of the new IR35 Legislation, our thoughts and what Sheldon Phillips are doing to help you with the new changes.
Following a lengthy consultation period in August of 2016, HMRC have confirmed that their planned legislation change to IR35 will go ahead, taking effect on 6th April 2017. Sheldon Phillips have been heavily involved with the consultation meetings with HMRC and our industry body, the REC. As well as a written letter to HMRC, we also took the opportunity to directly write to the Chancellor of The Exchequer and the Secretary of State for Education and Child Protection. You may have seen our letter on our website and also on Linkedin. In short, anyone falling “inside IR35 legislation” will be subject to deemed employment dedications which will be made by the entity that pays the worker using their own Ltd Company (PSC) which in most cases will be the Recruitment Agency, i.e. Sheldon Phillips. Off Payroll Explained Off payroll describes anyone who is paid out side of normal PAYE processes; so anyone using their own Limited Company (PSC) would be categorized under this term.
Under the current legislation, the liability to pay all deemed employment taxes falls on the Ltd Company – Income Tax, National Insurance and Employers NI contributions. If you fall outside of IR35, you would traditionally take a lower salary via payroll and then take dividends from the company, therefore paying less tax. Falling inside IR35 means that your income is deemed as employed income, therefore income tax, etc should be paid to HMRC in the normal way. HMRC estimate there are more than 200,000 Limited Company’s in the UK and by their own admission, cannot allocate enough resource to investigate whether each company is operating in the correct way.
From April 6th 2017 when the new legislation is introduced, HMRC will move the liability to make deemed employment payments for workers operating their own Ltd Company to the entity who pays the invoice; Sheldon Phillips. There are a number of criteria that would place a worker within IR35 legislation but the main parameters for this would be if the worker is providing a personal service, if they are subject to supervision, direction and control and also the right to provide a substitute. Due to the Professional code of practice and criteria from both BASW and the HCPC it is our belief that all social workers will be subject to the new changes within IR35 legislation. Receiving supervision or working in a controlled way is something all social workers are subject to and as a contractor, you cannot simply send a substitute worker to carry on with your allocated cases should you not be able to attend work in your assignment. That person would be subject to an interview process, compliance checks and it would not provide continuity or stability to the service users of the authority, therefore it would not be accepted.
Local Authorities and MSP’s In the coming weeks, once official communication has been received by HMRC, Local Authorities and MSP’s (Matrix, REED, De Poel) will need to decide on their own action regarding these changes and in some cases, may mean that using a PSC (Ltd Company) will simply not be allowed. Other options available will be to use a compliant Umbrella Company and for your agency to put you through their own PAYE processes. In practice, going through agency PAYE will dramatically reduce your hourly rate and so it is our understanding that you will be better off using a compliant Umbrella Company, through which you will be eligible for employment rights like holiday pay, sick pay, etc. Our Commitment To You To ensure that these changes are handled correctly and to avoid any disruption to your assignments, we at Sheldon Phillips are here to help guide you through every step of the way. We will be arranging an event in London for all of our Social Workers to attend, along with any colleagues who would be interested to talk about the legislation face to face and provide you with viable options for compliant Umbrella Companies. There will be a dedicated Q&A section to try and put any concerns you have to rest, so you can concentrate on your busy working lives. This will be communicated shortly via email, our website and on Linkedin.