IR35 delayed, but you still need to prepare - a financial adviser's take

What is it?

The new rules affecting thousands of contractors and freelancers were due to come into play in April 2020, but have been delayed by at least a year. The move to delay is part of the broader measures the Treasury has announced to help support the economy through the coronavirus outbreak.

While we can still expect the changes to happen on April 6 2021, it’s a very welcome delay as it gives everyone affected more time to prepare.

Under the current rules, contractors have to decide if they’re employed directly or through their own limited company.

The new rules will shift this decision to the employer.

What I’ve found from talking to my clients is that lots of contractors are still prepared to continue working through their own limited company – controlling their projects and not being entitled to the same full range of benefits as a direct employee. However, employers tend to be naturally cautious. Many could choose to only offer contracts as a direct employee, as they’re worried HMRC could review a case and decide that the contractor should have been classed as an employee after all.

Who will it affect?

If you’re not sure whether you’ll be impacted, there are three main tests to check if you fall within IR35:

• Control - can you choose your hours or location of work?
• Obligations - is the company you’re working for obligated to give you more work once you’ve finished a project?
• Substitution - is there a substitution clause in your contract and are you in control of the substitute?

What is the impact?

The impact for many people is that they’ll lose control of how they’re paid. Around 170,000 individuals could be affected by this change.

Let’s consider an example for a contractor who currently has a benefits package of £72,100 a year, compared to that of a direct employee with the same total benefits package.

Please note these examples are based on a rest of UK taxpayer this tax year (2019/2020). Tax rates and bands are different for Scottish taxpayers.

This is a big difference of £7,935 less in take home pay and £4,400 less in pension contributions.

But direct employees may well have access to more employee benefits, which could reduce the difference.

Please note, the example does not consider the payment of employer’s national insurance contributions or corporation tax on company profits.

Want to talk through saving tax? The sooner you act the better

If you think you could be affected by IR35 one thing is certain, the sooner you act the better placed you will be to reduce the potential impact. We understand it can be complicated, but financial planning can be well worthwhile.

Tax rules are constantly changing and their benefits depend on your circumstances. Our specialists can make sure you’re up to date and are making the most of your personal allowances. We can advise you on how to make use of your tax allowances through financial planning but if you need complex tax calculations or advice on how the new rules will affect you, we recommend consulting an accountant.

We won’t waste your time or money. Book your call back and we’ll help you understand whether you could take action and if we can help. If it’s right for you, we’ll book your free initial consultation with a financial adviser.

There’s no pressure to take advice, but if you choose to do so there will be a charge, which we’ll discuss with you.

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This article is not personal advice. Unlike the security of cash, investments fall as well as rise in value so you could get back less than you put in. Once money is in a pension you cannot usually access it until age 55 (57 from 2028).