Contractors' Questions: Is my agency deceiving me about IR35 reform?

Contractor’s Question: I asked my agency if they can start paying me through my limited company; they refused saying they couldn't because of the new IR35 rules from April 6th. Can I get around this? Am I just being deceived, considering the rules aren’t effective yet?

Also, they have refused to pay me weekly because, unbelievably, it's “just too much work for their payroll team.” So they’ve told me to use an umbrella company which charges. They have put me on ‘emergency tax’. What is this, exactly, and what should I do?

Expert’s Answer: It sounds like the agency is mindful that payment for work carried out on a public sector contract that begins before April 6th -- but payment made after that -- will be caught by the new off-payroll rules. That said, this shouldn’t stop the PSC being paid now -- or in this case, before April 6th 2017.

For payments made after April 6th, agencies can now use HMRC’s ESS Tool to help set the IR35 status, and still make payment accordingly, and with or without PAYE tax and NIC deductions. Despite this, the tool has come under scrutiny, with many questioning its accuracy (but public sector bodies will be defaulting to it without such consideration).

While HMRC’s technical note, ‘Off-payroll working in the public sector: reform of intermediaries legislation,’ advises agencies to consider existing contracts and prepare for the change, it doesn’t direct that agencies should withhold April 6th payments.

It’s only from this point in time that the agency -- as the fee payer -- becomes responsible for handling PAYE and NIC in respect of the off-payroll rules and cannot be penalised for payments made before the changes come in on April 6th.

In answer to the latter part of your query, and the final question you pose, ‘emergency tax’ or a ‘BR PAYE code’ means that you suffer basic tax rate on your salary from the umbrella company. It’s the same code number that would be used if you were paid through your PSC and your contract was deemed to be caught by IR35.

If you’ve used up all of your personal allowance against any other income in this current tax year, then a BR code is used. From April 6th, your coding should change to allocate all of your personal allowance against your umbrella salary, provided you’ve completed a Starter Checklist (in the absence of your P45) and given this to your umbrella company.

The expert was Andy Vessey, senior employment consultant at IR35 advisory Qdos.

Wednesday 15th March 2017