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Posted 26th April 2021

How will IR35 change the way contractors work?

Following its introduction at the beginning of April, both contractors, agencies and, of course, umbrella companies have been working non-stop to ensure that their operations continue to run efficiently, in spite of the new challenges presented by IR35 reforms.

Contractors will be well versed in IR35 legislation, as prior to these reforms they have been solely responsible for determining their own status. But now with this responsibility moving to the end client or agency (for medium to large businesses), the way in which PSCs work will inevitably change.

An unfortunate but very real consequence of these reforms is that some businesses may choose to no longer engage with PSC contractors, because of the liability that an incorrect decision could have and the increased administration involved. However, from our own experience here at Exchequer, we have seen many businesses embrace these changes and simply restructure their existing processes in order to ensure compliance.

For those contractors found outside of IR35 for a particular contract, they are free to continue as before; but those found inside of IR35 will have some significant decisions to make. Typically, being inside of IR35 will affect net pay by at least £100 per week. So, what other options are out there for PSCs if they don’t want to be subject to IR35 legislation?

Options for those inside of IR35

Umbrella

Becoming an umbrella company is one option available. Despite the fact that tax and NI would still need to be deducted, contractors would maintain the freedom of self-employment, whilst also reaping the benefits that go hand in hand with employment (e.g. sick pay, holiday pay, etc.).

CIS

For contractors working within the construction industry, CIS services will ensure compliance with the government’s own Construction Industry Scheme which requires contractors to deduct money from a subcontractor’s payments and transfer said money to HMRC.

PAYE

Simply opting to become an employee is a viable option for those that find themselves within IR35. They may still wish to carry out temporary contracts with recruitment companies and be paid by these companies. For agencies, Exchequer offers a PAYE service, removing the burden of payroll administration.

Want to find out more about how IR35 will affect contractors? Speak to our team today.

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