Contractors' Questions: Is an IR35 probe more likely if my rate's gone up?
Contractor’s Question: Regarding payments and my pay rate since April 6th in the public sector, what should I beware? For example, does a rate rise increase my chances of an HMRC investigation? And what is an ‘uplifted company rate’? Is it getting a rate rise since April 6th?
Expert’s Answer: Firstly, the good news. Increasing your rate will -- on its own -- have no bearing on your chances of an IR35 investigation.
As to what an uplifted company rate is, most agencies offer two rates -- the uplifted one you mention and a PAYE rate. The former -- the uplifted company rate -- includes employer costs that will have to be paid by the umbrella employer to HMRC. These costs include employer NI, employer pension contributions and the Apprenticeship Levy.
Assuming the rate is fully uplifted, there should be little difference in take-home pay between agency PAYE and umbrella PAYE. Generally, you will get enhanced employment rights, statutory payments and employee benefit schemes with employment via an umbrella. In both cases, the agency or umbrella company must pay the employer NI, not you. We recommend you check what’s included in the uplifted rate with the agency.
However, there is no point checking that, if you are within IR35, you can still be paid through your PSC as long as you yourself are operating PAYE because we can tell you -- you can’t. In fact, the fee-payer (the agency or public sector client) is liable for any underpayment of taxes and although you might be honest, I can’t imagine a scenario in which they would not make the deemed calculation themselves and deduct the taxes due. They also have to file an RTI report.
Finally, you share an assumption with some contractors that if the public sector body does not give you a decision, you might be able to ‘get away with it.’ The legislation places an onus on the contractor to provide any information to ensure the correct assessment is made. Withholding information will almost certainly be fraudulent and you will be liable for any underpayment of tax.
Remember though, you do have rights. If you want reasons for the decision your end-client has arrived at, or will arrive at, there is a 31-day window they have to tell you within. But your request for information must be in writing. The method of communication may be set out in your contract, so check it. If not, I would send your request by email and letter and count from the day the email was sent -- put a read receipt on it. Good luck!
The expert was Graham Fisher, the chief executive of Orange Genie.
Editor’s Note: This is part two of a Contractors’ Questions series based on questions posed in a ContractorUK webinar on the April 6th off—payroll rules. Read part one.