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With a huge amount of competing, and often conflicting, information flying around, contractors often come to Freshminds in an understandable state of confusion. Recent changes to IR35 and possible future ones can worsen it further. The following are the 5 questions we are most commonly asked about managing IR35:

1. If I have multiple clients, does that automatically make me “outside” IR35?

No, the fact that you have multiple clients does not impact any one of the individual assignments that you work on. Remember that the responsibility for setting the employment status determination falls on the client, and relates to the work the client wants done – not the status of the individual or entity doing the work.

So, if a job is deemed by a client to be “employment” then they have to offer it on that basis.

2. My client is offering me a role “inside” IR35 but I only operate “outside”. Can I negotiate?

Yes, and no. Ultimately it is for your client to decide, and you can’t ask your client to misrepresent either the nature of the work or your relationship with them to arrive at a status determination that you prefer.

However, you can point to ways in which you, and your client, could agree to amend the agreement to legitimately place the work outside of IR35. For example, you might be able to agree on specific project milestones and payments linked to those with your client, rather than a pure time-and-materials arrangement. Or that you retain the flexibility to have some of the work done by a substitute where that will not impact the quality or cost of the work.

Do be prepared for the fact that your client may not be willing to consider changes that would make it possible to deploy “outside” of IR35, so be clear in your own mind what the next best alternative might be.

3. I know my rate “outside” IR35, but how do I work out my rate inside?

This is a tricky one, as it hinges on so many factors that will be specific to your individual situation. But the following are hopefully useful “rules of thumb”:

• Work out your current tax burden on revenue you generate through your limited company. You might want to ask your accountant to work this out for you, or to refer to your most recent set of accounts. Let’s say, for example, that is 32%:

• Work out the likely tax burden on the PAYE income you would receive if you did this work inside IR35. There are lots of calculators such as salarycalculator.co.uk that can help you do this. This might show, for example, that your tax burden would work out at 38%

• This information would indicate that you might want to increase your charge rate a little, to account for that.

If you are working via an agency, they should be able to provide you with a standardised breakdown of the deductions that will be made from your gross pay. These won’t be perfectly accurate to you (as that will of course depend on your specific tax situation) but it will be a clear overview and a good illustration.

Talk to others. There is no substitute for talking to others and hearing their direct experience. Again, if you have a relationship with an agency, ask them to suggest other contractors who might be happy to chat with you about their experience.

4. What are the advantages of taking work “inside” IR35?

We know lots of consultants and contractors who have found that working inside IR35 brings several benefits.

First and foremost is simplicity. Knowing that there is a payroll team making all the required tax deductions, so you don’t have to worry about it, is great. 

If you are only going to take work “inside IR35” then you no longer need to incur the costs of running a business – insurance, accountancy, etc.

If you typically favour longer-term contract deployments you may also find that some clients offer better than minimum benefits, and elements such as pension contributions add up quite quickly.

5. How do I get paid for contract work “inside” IR35?

There are three ways in which you could be paid.

1. If you are being hired directly by your client, then they may add you to their payroll. This usually means that you get paid with the same frequency as permanent colleagues, and on the same date, although some might run a weekly contractor payroll too.

2. If you are being deployed via an agency, you may be added to their contractor payroll. Most agencies running a contractor payroll will offer weekly or monthly pay options. The agency should not charge you for processing your pay, and they should not make any deductions from your payroll other than those required by law.

3. The third way will be via an umbrella. Some clients and some agencies use umbrella companies to stand as the temporary employer, and therefore, the payroll provider. This is usually because there are benefits to the client or the agency in terms of simplicity and sometimes cost (they are effectively outsourcing an admin function). Again, make sure that any umbrella organisation does not make any charge or levy any fee.

Some umbrella companies advertise their services directly to contractors, encouraging them to register with them and get paid for any contract work they do via/through the umbrella. Again, there may be instances where this is advantageous, but by and large, it should not be necessary. You should not need to pay to get paid. Be wary of umbrella schemes that claim to be able to significantly reduce your tax burden. Always take independent advice, and always get a second opinion.

Freshminds’ On Demand division employs a multitude of consultants and contractors, both inside and outside IR35. We operate an in-house payroll for all contractors and provide support via our highly experienced team to make the process simple and pain-free for both clients and contractors.