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What are my options if I am deemed 'inside' IR35?

Rebekah Valero-Lee ir35

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If you are deemed 'inside' by the end client you have several options. To help you make your decision, we explain the two most popular pay models below.













































What does 'inside' IR35 mean?

Under new legislation, as of 6th April 2020, your end client (not you) will be responsible for determining your tax status. If you are determined to be ‘inside IR35’ it means that you are considered, for tax purposes, an employee of your end client and therefore subject to PAYE. If you are operating ‘inside IR35’, you need to ensure you are paying the appropriate taxes. Some contractors may opt to change their payment model to avoid paying these taxes. We explore the two most popular alternative pay models below:


PAYE

As a temporary PAYE paid worker, you would be engaged on a contract for services and be entitled to at least 28 days holiday (inclusive of bank holidays). If there is a permanent, comparative member of staff at the client where you work, who performs the same role as you, then you will be entitled to the same holiday entitlement as them after 12 weeks service.

You are also entitled to be auto enrolled in the work place pension scheme, currently operating at 3% deemed employer contribution based on yourself contributing 5%, plus entitled to statutory sick pay after the qualifying period.  

  • PRO's
    • Along with the above benefits, if you convert to a PAYE model you will no longer have to pay accountant fees once you close your limited company and settle your final bills. You will also no longer need to pay for insurances which were required as a limited company worker, such as Public Liability Insurance or Employers Liability Insurance.
    • If you choose to go PAYE through Morson, we will deduct appropriate tax and national insurance from your gross pay before paying you. The Morson payroll service does not carry any charge.


  • CON's
    • As a temporary PAYE worker there is no ability to benefit from tax efficient measures such as salary sacrifice pension schemes or claiming tax relief for travel and accommodation expenses not covered by the client.


UMBRELLA

The payment mechanism when choosing to work via an umbrella company is the same as the above option (PAYE), except for that you would be employed under a contract of employment with the umbrella company. This means that whether you carry out one assignment or multiple assignments, you'll be employed under the same contract.

This gives you a record of continuous employment as you move from one assignment to another which may help with mortgage or loan applications.

This method also helps to ensure that you are on the correct tax code whilst providing you with one pension pot. The umbrella company will provide all statutory benefits such as maternity and sick pay but and, in most cases, provide additional benefits such as reward schemes and personal insurance at no extra cost.


  • CON's
    • Utilising an umbrella company will carry an ongoing service charge which differs per provider.



For tailored advice and further support contact our expert IR35 team at IR35@morson.com or call our Contractor IR35 Helpline on 0161 786 2377