With upcoming changes in legislation with IR35 in April 2020, we’ve been speaking to experts in this field for further info. We asked Jeff Blakemore from Fore Two Group a series of questions from one of our contacts.
Q: My role is likely to be deemed Inside IR35 from January, what are the main considerations if I decide to continue to be paid through my limited company from January?
There are a number of considerations, but the two big ones are:
1) the funds received into the business bank account will be a net payment rather than the gross invoice value.
2) restrictions on the ability to claim expenses (especially the loss of the automatic 5% expense allowance) and the inability to be paid dividends.
The organisation being invoiced by the Limited Company (and therefore paying the funds to the limited company) is classed as the fee-payer. Where the assignment is deemed to be inside, the fee payer will have to put the contractor on their payroll (and will therefore be on the fee-payer’s RTI return). They will have to calculate and deduct PAYE Tax & NI plus account for the Employers NIC, Apprenticeship Levy and deal with any pension requirements, pay the NET amount into the limited company business bank account. It would be expected that tax will be applied at basic rate, so depending on the individuals circumstances, there could be a further tax liability due to under payment i.e. if the individual should be a higher rate tax payer.
If the position is currently Outside IR35, then there is a likelihood the contractor will be claiming the 5% expenses allowance plus claiming expenses, potentially making salary sacrifice pension contributions (to offset tax) and off-setting things such as their accountancy fees, insurance and any other professional fees. If they are then treated as Inside IR35, the Limited Company will still have all those expenses but the ability to off-set them will be significantly restricted, will not be able to make salary sacrifice pension contributions, and will still have to run their limited company, do their invoicing etc and have absolutely no financial incentive or benefit for do it. So in terms of both time committed to running the limited company and the significant reduction take-home pay, I really don’t see why anyone would consider this as a viable option.
ForeTwo Group is a UK based umbrella, limited company accountancy and self-employed services provider. Founded on the basis of driving up standards and delivering a first-class service. ForeTwo Group have 90 years worth of experience in this space.
If you have any questions for us to put to our partners, please send them through to Joanna, Joanna.Jewitt@orbisconsultants.com