The controversial new IR35 rules are set to be extended into the private sector from the early April 2021.
Tania Bowers, Legal Counsel from APSCo said: “When a contractor changes from outside to inside IR35, our advice to members has always been that the cleanest approach is to terminate the original contract with the PSC and issue a new one on new terms.
"This is generally required as most workers – as we saw from the 2017 reforms and are already seeing now – provide their services through an employment solution at an umbrella company rather than continue to work inside IR35 under their PSC.
"However, the contractor works, inside IR35 or umbrella, if clients are unwilling to increase their rates then our members are left in a position where they need to offer the contractor a new contract, but on different fee rates, as employers’ NICs and apprenticeship levy contributions – where applicable – must be paid. The Key Information Document is intended to address the issue of transparency over pay, but currently it is not having the impact hoped for.
“The recruitment company must pay the umbrella a sum which covers the employment costs, including holiday pay, apprenticeship levy contributions, NICs and worker gross pay. This means that the worker’s gross pay will be less than the amount paid by the recruitment agency to the umbrella. As an HMRC spokesperson explained recently, ‘it is legitimate for umbrella companies to deduct employers’ national insurance contributions from the payment they receive from the recruitment agency’.
“APSCo is aware that there can be some confusion if this issue is not fully explained to and understood by the contractor. We continue to seek to advise our member companies on this issue, suggesting clearly differentiating “outside IR35” rate and PAYE/umbrella rate."
Further IR35 information
For more information about all aspects of IR35, including the controversial IR35 reforms see Shout99's News on IR35 section.
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Susie Hughes © Shout99 2012