With IR35 reforms being brought into the private sector from April 2020 the role of an umbrella company will become more and more relevant for both contractors and agencies.
In 2017 the IR35 reforms shook the public sector when the responsibility for assessing IR35 status passed from the contractor to the agency or client. Understanding the economic impact of this, it is perhaps not surprising that the 2018 Autumn budget extended these reforms to the private sector.
With little time to implement these changes before April 2020, contractors are encouraged to seek advice to make sure they operate compliantly and do not expose themselves to the risk of financial penalty. Whilst contractors may set up under a variety of employment structures, many long-term contractors had operated under their own Limited Company for maximum tax efficiency.
How IR35 reforms will affect Contractors
If you contract via your limited company, from April next year your client or agency will determine whether you fall within IR35 constraints. If they determine that you are within IR35, then not only will you need to pay tax and NI contributions, but you can no longer take dividends through your Limited Company, making the structure tax-inefficient and hard to justify the administration it brings.
As your employment status will not change, you will not be entitled to benefits such as holiday and sick pay, pension contributions, and claiming expenses will become increasingly difficult.
One of the best options available to you is to contract through an Umbrella company. Working under a PAYE Umbrella offers protection to contractors, as the umbrella company becomes the Employer of Record, entirely removing the risk of being caught under IR35.
At Rubicon Pay we are experts in IR35 and can help you prepare for the changes IR35 will bring. For more information about IR35 and how Rubicon Pay can help click here.