By Charlie Wood
So, the IR35 changes have been delayed and the Off-Payroll worker rules changes in the private sector won’t come in to play until April 2021. Where a Contractor is engaging via a PSC / Limited company, the responsibility for assessing and also ensuring appropriate taxes are paid have now fallen back onto them and end-clients & fee-payers aren’t accountable.
Whilst the last-minute U-turn from the Government was welcomed by many contractors, those companies who were (or were nearly) compliant with the new IR35 Off-Payroll worker rules for the private sector have had their worlds thrown into turmoil once more.
On top of the mammoth task of adapting their companies during a country wide lock-down, this U-turn wasn’t particularly welcomed by businesses who were well on their way to implementing the changes. However, it’s an understandable (if poorly timed) reprieve for those businesses who were struggling to prepare for the new legislation.
In terms of Client reactions so far, we’ve had confirmation from several of our clients who chose to ban engagement with PSC’s that their position will remain the same. Many of them had implemented the migration of contractors over to PAYE models earlier in the year and to reverse those changes would have invited additional administrative work and potential chaos at a time when the more pressing concern was setting up thousands of workers to engage remotely.
These ‘NO PSC’ companies have already been through the pain associated with the policy change and the vast majority of the Contractors who had converted to PAYE models seem to have accepted their position, even if it might not have been their first choice.
For those companies that had assessed, or were in the process of doing so, this has generally been an easier decision. Once again, the vast majority of the Assessors have confirmed the Governments position and postponed their assessments until next year. As confirmed by HMRC, any SDS’ already produced by end clients have no legal standing and the majority of companies have sensibly deleted them.
The upside for these businesses is that they have a process in place and templates to use for the assessments when the time comes again next year. Lessons are likely to have been learned and the 2021 implementations should go more smoothly and require less manpower.
Overall, this could play into the hands of those who assessed and are now offering Contract roles where the Contractor still assesses and is responsible for their IR35 status & obligations. They may prove to have a competitive advantage in the market when compared to those organisations looking for similar skillsets but who only allow Contractors to engage via PAYE routes. Of course, it’s not necessarily as straight forward as that, particularly due to Covid-19.
The Contract market has suffered a massive blow due to the lockdown and the full ramifications of the inevitable recession and potential depression are yet to play out. Whilst many contractors are currently still engaged businesses will likely soon turn their attention towards cost reduction in order to remain viable during the period of uncertainty.
This will include the rationalisation of Change portfolios, where we may see projects put on hold and Contractors cut as permanent staff are furloughed to take advantage of the Government’s Job Retention Scheme.
Whilst this won’t affect everyone, it’s safe to assume that Recruitment, and particularly Contract Recruitment, will suffer as a result of change freezes and project delays.
So, what does this mean for Contractors and what are the options the Government is putting in place to protect their income alongside that of Permanent employees?
This is the question currently being asked by Contractors, Agencies and Umbrella companies alike. The Government scheme for the Self-Employed does not apply to Limited Company Contractors who are Directors of their own companies and pay themselves any kind of Dividend. That’s the vast majority of PSC Contractors. For those PSC Contractors, the only viable option currently on the table looks to be furloughing themselves as an Employee of their Limited Company and claiming back 80% of whatever official Salary they pay themselves. For many, this won’t amount to much.
For Contractors who are PAYE via an agency, in theory the agency can furlough the contractor and pay them 80% of their Salary as with any other temporary employee, as long as they have been paid at least once on or before March 19th this year, are unable to work due to the Covid-19 crisis, are available to work and agree to be furloughed for a minimum of 3 weeks. We still need to understand if this would only qualify if it were at the behest of the end client or simply if the end client terminated the contract due to Covid-19.
What this means for Umbrella Company Contractors is yet to be determined but the Umbrella Companies we are speaking to are trying to ascertain this as a matter of urgency.
Theoretically, should the end-client choose to furlough these Contractors then the Umbrella Companies will be able to furlough the Contractors and pay 80% of their salaries up to the £2500. Umbrella employees are usually paid a combination of National Minimum Wage and the rest as a bonus. Under the current guidelines, these bonus payments wouldn’t be included in the calculations, which would leave furloughed Contractors with 80% of national minimum wage as a salary. The Umbrella’s are campaigning to have this changed so that they can include the bonus payments but as yet there has been no change.
With the situation evolving on a day to day basis, our advice to contractors on engagement is to stay in regular contact with your end clients, your agency and your Umbrella/Accountant in order to understand your options, should your role be negatively affected. We will, as always, do our best to keep you informed.
Stay safe, keep well and don’t hesitate to get in touch – we’re here to help in any way we can.