As a contractor, IR35 will have a significant impact on how you secure work and how you are paid for your services. Please visit the HMRC website more detail about this change in legislation.
At EQ Hazell Carr we are committed to providing the highest standards of candidate care. As part of our service we want to make sure our contractors are well informed about legislation that may affect them.
We are also talking to our clients to understand their preferences when engaging with contractors. We will support our contractors through this journey to help them ensure they remain fully compliant with IR35 regulations.
To achieve the above, we will work with a small number of preferred umbrella companies. The details of these umbrella companies will be communicated to all of our contractors in the coming weeks.
If you currently work through an umbrella company you do not need to make any changes. If you currently work through a limited company, and you are considering moving to an umbrella company, we suggest that you review the umbrella companies on our panel.
Introduction to Frequently Asked Questions (FAQs)
We are committed to answering your questions and providing information that is relevant. We will continue to make sure that any changes that affect how we work together are promptly communicated and we will send regular communications prior to the change in legislation.
The FAQs are intended to help all contractors understand the new IR35 legislation, including those who operate as personal service companies (PSC)/limited companies and those who use the services of an umbrella company.
Please see below for answers to some of the questions that we have been asked. We will continue to add further answers over the coming weeks, so please regularly visit this page for updates.
Q1. What is IR35?
A1. IR35, otherwise known as ‘The Intermediaries Legislation’, became law in the Finance Act 2000. Until 6 April 2021 it primarily affects contractors working in the public sector. However, from 6 April 2021 the legislation will also affect the private sector.
One of the main principles of this legislation is to ensure that all workers are correctly paying tax and national insurance contributions. In simple terms, from 6 April 2021 the IR35 tax status of an individual working through a PSC/limited company will be determined by the end client receiving that individual’s services.
Q2. When is this due to take effect?
A2. The new rules will come into effect on 6 April 2021, and will apply to any payments made to a contractor working through a PSC/limited company on or after that date.
The Government has not approved the final legislation yet. We are monitoring the situation to ensure we can accommodate any changes to the draft legislation or implementation date.
Q3. Who will be affected by IR35?
A3. If you currently work through a PSC/Limited Company, then from April 2021, the responsibility for assessing your employment status for IR35 tax purposes becomes the responsibility of the end client. This anticipated change has resulted in companies reviewing how they engage the services of contractors.
If you already work through an umbrella company on our panel the IR35 legislation won’t affect you directly.
Q4. What is an umbrella company?
A4. An umbrella company employs individuals (contractors) who work on temporary and fixed term assignments. This typically means:
- The contractor is an employee of the umbrella company, which ensures the correct Income Tax and National Insurance deductions are made at source.
- The contractor completes a timesheet that is submitted to the umbrella company who then invoices us for payment.
- Using an umbrella company is the main alternative to setting up your own PSC/limited company.
Q5. Will I be able to work with you (EQ Hazell Carr) via any umbrella company?
A5. No. We will only work with umbrella companies on our panel, which are reputable umbrella companies that are financially sound and have appropriate systems and controls in place governing their activities. We also only work with organisations that are accredited by the Freelancer and Contractor Services Association (FCSA) and meet the end client’s standards.
Contact details for our panel of umbrella companies can be found here.
Q6. When will I be expected to change from a PSC/limited company to an umbrella company?
A6. We expect that the majority of our contractors will need to switch to an umbrella company from 1 April 2021 onwards. We will continue to work closely with contractors and communicate any required changes and deadlines.
Q7. Does this mean that PAYE and umbrella companies will be the only options once IR35 comes into force?
A7. We anticipate that these two payment models will become the most common in the market.
Q8. Will umbrella companies pay sick pay, holiday pay and pension contribution from April 2021 onwards?
A8. If you use an umbrella company, we would expect them to offer these employee benefits. Please speak to the umbrella companies for more information about their employee benefits.
Q9. Will the rule changes be applied retrospectively?
A9. HMRC have confirmed they will not make retrospective claims against PSCs/limited companies if they change their status from outside to inside IR35.
Q10. How will it work for futures roles?
A10. We will work with our end clients to ensure they establish the IR35 status of all roles and we will include this status in all roles that we advertise. Contractors will then be informed of the IR35 status of a role from the start of the resourcing process.
Q11. Is there a chance that the 6 April 2021 implementation will be delayed?
A11. We have not received any indication that it will be delayed.
Q12. How will IR35 affect contracts that are already underway when the legislation comes into force?
A12. If the role is determine to be inside IR35 then we expect that contracts will be terminated and the payment model of either PAYE or umbrella company will be made available.
Q13. Are short-term contracts, i.e. a one or two month contract, liable to IR35?
A13. Yes. Each contract will be evaluated by HMRC.
Q14. How does it work if I subcontract for two different companies?
A14. Each role will need to be assessed on its own merit.
Q15. My PSC/limited company has multiple work streams, does this automatically take it out of IR35?
A15. No, each work stream would be assessed on its own merit; you could potentially be inside IR35 on one and outside on another.
Q16. Will I be able to continue my current role as a self-employed individual rather than a PSC/limited company?
A16. No, self-employment is also governed by IR35.
Q17. Why has the IR35 reform been introduced?
A17. The Government assessment was that small PSCs/limited companies were being used to disguise employment and, and as a result, less Income and National Insurance tax was being paid. The Government described the IR35 reforms as a means of tackling perceived high levels of non-compliance with IR35 among the self-employed within the private sector. HMRC estimate the cost of non-compliance at £1.2 billion per annum by 2023.
Q18. Is this new Legislation?
A18. No it’s not new. The intermediaries legislation, commonly known as 'IR35', was introduced with effect from 6 April 2000. The IR35 rules were subsequently introduced into the Public Sector on 6 April 2017 and will be introduced into the Private Sector from 6 April 2021.
Q19. How does IR35 affect the Private Sector and contractors who work through a PSC/limited company?
A19. Currently it's up to the directors of the PSC/limited company to perform the IR35 assessment. From 6 April 2021 the end client will be responsible for determining the IR35 status of the role. If an end client assesses a role as ‘inside IR35’ then income tax and National Insurance must be deducted before making payment to the contractor's PSC/limited company.
Q20. What’s a “blanket decision?”
A20. When IR35 was introduced into the Public sector in 2017, many Public Sector bodies automatically assigned the same IR35 status to all roles without completing the individual assessments as required by the legislation. The term ’blanket’ decision refers to this approach.
Q21. Will IR35 apply to all contractors who work through a PSC/limited company?
A21. Yes, from 6 April 2021 IR35 will affect all contractors who work through a PSC/limited company. Private Sector organisations will be responsible for deciding the IR35 status of roles/assignments.
Q22. Can I avoid IR35?
A22. You cannot avoid IR35. If you are currently working through an umbrella company, or intend to do so before 6 April 2021, these IR35 changes will not affect you.
Q23. How is IR35 determined?
A23. The Government has developed an assessment tool to help organisations within the Public Sector. The following links provide further information about the current assessment process to check employment status and the effect of the 6 April 2021 changes.
Q24. Who will assess my IR35 status ahead of 6 April 2021?
A24. EQ will continue to work closely with end clients to understand how they are planning for IR35 and if any changes will take place ahead of 6 April 2021. Once we have clarity from our clients we will share their decisions with you and explain the effects of these decisions and any changes that may be required.
Q25. Is there any useful reading on this subject?
A25. For further information on the current legislation please go to the HMRC website: https://www.gov.uk/guidance/prepare-for-changes-to-the-off-payroll-working-rules-ir35
Q26. How will I know if I am inside or outside of IR35 for my current assignment?
A26. EQ Hazell Carr will contact you to let you know about any changes that you may need to make. The majority of our clients have opted to not permit PSCs/limited companies from 1 April 2021 onwards, which means that you must switch to an umbrella company. .
Q27. What happens if an End Client carries out an IR35 assessment and deems a role to be outside of IR35?
A27. After an end client has carried out an IR35 assessment they will issue a Status Determination Statement (SDS) to EQ Hazell Carr. EQ Hazell Carr will contact the affected contractor(s) to discuss next steps if the SDS confirms that a role is outside of IR35.
Q28. What happens if an end client carries out an IR35 assessment and deems a role to be inside IR35?
A28. After an end client has carried out an IR35 assessment they will issue a Status Determination Statement (SDS) to EQ Hazell Carr. Contractors must work via an umbrella company if the SDS confirms that a role is inside IR35.
Q29. If I switch to an umbrella company, does that make me an employee?
A29. Yes the umbrella company will treat you as an employee.
Q30. What happens if I disagree with the end client's IR35 outcome?
A30. If a contractor disagrees with the IR35 outcome, the Status Determination Statement (SDS) will also include details of the appeals process for the contractor to follow.
Q31. Because my PSC/limited company contract was signed prior to 6 April 2021, I’ve been informed that I can continue to work via my PSC/limited company until the end of the contract.
A31. No that isn’t correct. HMRC confirmed that the IR35 regulations will apply to services provided via a PSC/limited company from 6 April 2021. Therefore, IR35 regulations will apply if you work on any assignment from 6 April 2021 onwards.
Q32. There are a number of expenses that I currently incur and will continue to incur even after I switch to an umbrella company. After I switch to the umbrella company, can you explain what expenses I can continue to charge to my PSC/limited company, what expenses are covered by EQ Hazell Carr and what expenses are covered by the umbrella company.
The following information is intended as general guidance only. As everyone’s circumstances are different, we strongly advise that you speak to your umbrella company about their expense policy and also seek professional advice about the type of expenses that can be claimed.
A32. If you operate via a PSC/limited company, expenses you currently claim and how you claim these expenses does not change until the date that your umbrella company contract becomes effective.
If you are working via an umbrella company and you are eligible to claim expenses, your contract will include details of the expenses that you are able to claim and the expense policy or policies that need to be adhered to.
For example, before submitting any expense claim to EQ Hazell Carr, you should check with your Manager whether these expenses can be charged to the end client or to EQ Hazell Carr.
Once your expenses have been authorised, they are paid to the umbrella company gross (i.e. without Income Tax or NI deductions).
Please speak to your umbrella company about their expense policy and payment of expenses that have been reimbursed by EQ Hazell Carr. HMRC also provide guidance about expenses that can be claimed via HMRC Self-Assessment.
Q33. If I am switching to an umbrella company before the end of the tax year, do I need to wait until end of tax year to claim expenses?
A33. This depends on your personal circumstances, so we recommend that you seek professional advice from your accountant and/or HMRC to ensure you get the right professional guidance and advice.
Q34. What expenses will I be able to claim as an umbrella contractor from EQ Hazell Carr and how is this different to what I was able to claim as a PSC contractor?
A34. If, due to the nature of your role and with prior approval of your Manager, you are able to claim expenses, please refer to the information contained in the EQ Hazell Carr Standard Expense Policy.
For any additional expenses that you currently claim that are not covered by EQ Hazell Carr, please speak to your accountant and your umbrella company for further advice and guidance.
Q35. Do I need to obtain approval for expenses from EQ Hazell Carr or from my umbrella company?
A35. If you are claiming expenses from EQ Hazell Carr, you need approval from your EQ Line Manager.
- Check your contract to make sure you can claim expenses
- Adhere to the relevant expense policy (client and/or EQ Hazell Carr Expense Policy)
- That expenses reimbursed by EQ Hazell Carr will be paid gross to the umbrella company
- Speak to your umbrella company to find out how they process and pay expenses that have been reimbursed by EQ Hazell Carr.
If the expense is not included in your contract or covered by EQ Hazell Carr, please speak to your umbrella company about their expense policy and/or your accountant to get professional advice.
Q36. Are all expenses tax free?
A36. Expenses that are reimbursed by the end client or EQ Hazell Carr are paid to the umbrella company gross (i.e. without Income Tax or NI deductions).
Please speak to your accountant and/or your umbrella company to find out more about any other expenses you can claim, how to claim and the tax treatment of those expenses.
HMRC also provide guidance about expenses that can be claimed via HMRC Self-Assessment. https://www.gov.uk/self-assessment-tax-returns
Version 1.5 Updated on 4 January 2021.
If you have any further questions about IR35, please contact us on 0203 048 1890 or email us at firstname.lastname@example.org.