Clinical Coding Contract Recruitment

I think I, along with thousands of others, jumped with joy at the announcement yesterday evening by Stephen Barclay MP, the Chief Secretary to the Treasury that the impending off payroll legislation known as IR35 would be deferred until April 2021. As good as this news is, we should never have reached this point with the legislation. The contract community and the wider business community have been arguing for the past 18 months (at least) that it is no fair and is not fit for purpose (as we have seen in the public sector). It’s difficult not to feel that HMRC knew it was a pile of the proverbial a long time ago but wasn’t prepared to lose face by delaying it and simply carried on with it, and now they have a convenient get out by blaming it the current coronavirus emergency. For anyone following IR35 closely, you may have read that the House of Lords ripped HMRC and the IR35 legislation to shreds over the past few days. HMRC was incapable of justifying many points raised by the Lords. I am fully aware of the vast amount of time spent in preparation for April 6th 2020 but agencies, clients, umbrellas, accountants and contractors, the cost of which is immeasurable. Just like in April 2017 when we got sight of the final public sector legislation 2 weeks before the April 6th deadline, we now have clarity just over 2 weeks before the private sector deadline. Maybe HMRC and Gov work in a parallel universe where business has nothing better to do than to react to legislative changes at the very last minute. Let’s hope that the next 12 months give HMRC time to make the legislation more realistic, fair and workable for all. I’m not holding my breath.

With the impending rollout of the off-payroll rules in the private sector, closely mirroring the rollout to the public sector that we saw rushed through in April 2017, the importance of working through a compliant umbrella company is as important as ever. Clearly, not all contractors use umbrella companies, and the continued use of a PSC is still acceptable, but not always to best approach if the off-payroll rules (essentially IR35) applies to your assignment. With the public sector rollout, the industry saw an increase in more dubious umbrella companies offering loan schemes to reduce (avoid) tax and NI contributions. Essentially, with these schemes, a contractor would be paid from an employee benefit trust in the form or an interest free loan that is never expected to be repaid. Unfortunately, and often unbeknown to contractors, these schemes are illegal and HMRC is determined to close them. Perhaps more concerning for any contractor that has been remunerated in this way is that HMRC is also entitled to collect unpaid taxes and NICs due on the loan payments, going back as far as April 1999!! This has come as quite a shock to as many as 50,000 contactors who have used them, many receiving life changing demands, some over £100,000. It is estimated if a contractor earning as ‘little’ as £40,000 per year over 5 years has been paid in this way they could face a tax bill of over £50,000. As a responsible agency we have a preferred list of umbrella companies that we provide to our contractors but on many occasions a contractor has their own preferred option. In these circumstances we will carry out due diligence on these to ensure they are compliant although if we are provided with false information we cannot always guarantee HMRC will not be knocking on the contractor’s door in the future. For any contractor that believes their agency will have to pick up their tax bill, you will find you are sadly mistaken unless your agency clearly coerced you into using a non-compliant umbrella offering such an illegal scheme. Any reputable agency would not dream of taking such as risk. The moral of this is if it appears too good to be true, it probably is. And it will come back to haunt you. Our compliance team are here to assist with all on boarding and are happy to provide our extensive list of compliance umbrella service providers.

Are you a Limited Company (PSC) worker, still confused about Off Payroll rules (currently in the Public Sector, probably coming to the private sector) and how this affects the way you’re paid, or the way you pay yourself, or how much you'll 'lose'? We are now over 18 months into the changes made regarding who makes the decision on whether IR35 applies in the public sector, yet there is still confusion as to how this actually hits contractors in the pocket. We are still speaking to many contractors who make all sorts of claims about how little they will actually take home compared to when they previously worked outside the IR35 legislation, sometimes as little as 40%. Now whilst I agree that in all but the simplest situation, contractors will be slightly worse off, but it is rarely by the amount that is first perceived (unless, of course, there are some funny goings on in terms of not quite paying the amount of tax owed (strange off shore loans or other illegal avoidance schemes*) Note that this is not tax advice and I do not intend here to go into specific calculations. Where example figures are used, these are purely that, just simple example figures, but accurate enough to give a fair representation of my points! The first thing many contractors do is to compare the net amount they will be paid inside IR35 with the gross amount they usually get outside. For example, a contractor who is used to earning £500 per day outside IR35, is likely now to be offered a rate of around £435 per day inside IR35 (the difference being the submissions that agency needs to make to HMRC for Employer’s NI, as well as the apprenticeship levy if it applies). From the £435 per day, employment deductions of Employee’s NI and PAYE will be made, before the ‘deemed’ payment is made to the ltd company. If one simply compares £500 per day to the new payment of £435 less deductions, then clearly there is a significant difference. But it is not that simple as there are other rules / obligations that need to be considered. For those INSIDE IR35: Your company is paid the Deemed Payment (the net payment after deductions made to the contractor’s ltd company): Once the deemed payment is made to the ltd company, you still need a way of taking that money out of your ltd company. This can be done in 2 ways: 1. Dividends: If you’re a director of your own company, you might choose to pay yourself a dividend from the company’s profits. You can pay yourself a tax-free dividend up to the total of the deemed direct payment received from contracts in the public sector, where Income Tax and NICs have been deducted at source. You don’t need to declare that dividend on your Self Assessment tax return. 2. Payroll: You can pay yourself for the work provided to public sector clients through your company’s payroll. As employment taxes have already been paid on the amount your intermediary (your ltd company) receives,you can pay yourself that amount without deducting Income Tax or NICs. And the icing on the cake: No Corporation Tax When you are calculating your company’s turnover, you should deduct the VAT exclusive amount of the invoice, which is the amount from which Income Tax and NICs were deducted at source. Your company accounts should show this deduction to make sure the amount is not taxed twice. So to put it simply, the amount paid to you by the agency is yours to take out of your PSC (your ltd company) WITHOUT ANY FURTHER DEDUCTIONS. For those OUTSIDE IR35 To get your £500 per day out of your ltd company, again you can pay yourself dividends, or a salary (or mixture of both) Dividends: The tax advantages between dividends and salary are diminishing but, nevertheless, there is still a slight advantage to dividends. As opposed to the Inside options above, your dividend will be liable to dividend tax, AND corporation tax. Payroll: You can take it as salary – but your company will be liable for Employer’s NI (aha, so there’s the difference between the £500 and £435 already gone), then there are the same NI and PAYE deductions taken that were taken for your deemed payment, meaning that if you were to pay yourself purely by means of a salary, your take home will be the same as if you received the deemed payment from the agency. As you can see, the difference is not as clear as might be first thought, and many roles inside IR35 have the rates inflated to compensate. So next time you are considering turning down a contract opportunity that is caught by the legislation, it might be time to think again! And to keep things really simple, using a compliant umbrella company means that the legislation will not apply, you will not have the headache of running a company, and your net pay will be virtually identical to a deemed payment. *Many contractors are unaware of the Employment Intermediaries Legislation which requires employment intermediaries (ie agencies) to submit a quarterly report to HMRC detailing ALL payments made to a contractor / contractor’s ltd company - they know what contractors should be declaring regarding all funds paid through an intermediary.