Contractor’s Guide to IR35 in 2021

What do reforms to IR35 mean for me?

What is IR35?

IR35 was introduced by the government to stop workers such as contractors from working as disguised employees. Essentially, the legislation was implemented to stop these individuals from enjoying the tax benefits of the self-employment by taxing them at a rate similar to employees.

IR35 originally came into action in 2000. When it was introduced, it was the responsibility of the contractor to determine and declare their own IR35 status.

This changed when HMRC deemed that too many companies were not compliant and from 2017, in the public sector, it instead became the responsibility of the client to decide the contractor’s IR35 status. For more information on the public vs private sectors for contractors, check out our handy guide.

What do reforms to IR35 mean?

Under current IR35 rules in the private sector, it is the contractor that is responsible for establishing their own IR35 status and the risk of non-compliance sits with them.

However, from April 2021, this will become the responsibility of the end-client, introducing a new tax burden on any client that decides to work with contractors. This is true for all clients except small businesses.

A small business as determined by The Companies Act 2006 has two or more of the following features:

  • Has a turnover of £10.2 million or less
  • Has a balance sheet total of £5.1 million or less
  • Has 50 employees or less

All other clients will be responsible for determining IR35.

If a client decides that the contractor is inside IR35, they will be taxed before their fee is paid to them, just as if they were an employee.

Although they will be forced to pay tax like an employee, they will still be considered self-employed and therefore will not receive employment benefits such as statutory rights. These include things like holiday pay, sick pay, a workplace pension and maternity and paternity leave.

If you are outside IR35, however, you can continue to benefit from the tax advantages of self-employment by paying yourself a salary and withdrawing further income from dividends which are not subject to National Insurance Contributions.

These reforms to IR35 are set to badly impact thousands of self-employed contractors, with some large firms planning to stop working with contractors altogether.

How is my IR35 status determined?

To determine a contractor’s IR35 status, there are certain criteria to look out for. Some of the main indications include:

  • Control: this determines the level of control the contractor has over the work they do for the client. For example, if the contract states the contractor will be supervised by a manager, outlines work start and end times and includes staff benefits, it is likely that the contractor will be deemed inside IR35.
  • Substitution: this looks at the contractor’s ability to bring in a substitute to carry out the contract for them. In order to be outside IR35, the contract should state that the contractor has the right to substitute.
  • Obligation: this looks at the contractor’s obligation to the client. For example, a contract that states the contractor can’t work with another client whilst undertaking the current contract will likely be considered inside IR35.

How to avoid IR35

As reforms to IR35 draw ever closer, many self-employed contractors are inevitably feeling worried about what this will mean for them.

After all, contractors that are caught out by IR35 will be required to pay more in tax and National Insurance in line with employee rates, but won’t receive the benefits of being an employee.

If you find yourself in this position, there is a way to avoid IR35 – by operating through an umbrella company.

What is an umbrella company?

An umbrella company employs the contractor, putting them on their payroll, paying them a salary and taxing them through PAYE. Umbrella contractors receive statutory benefits enjoyed by employees and won’t have to take care of time-consuming tasks involved with running their own business such as invoicing.

Working through an umbrella company is considered a great route for contractors, offering a range of benefits, including:

  • Avoid being caught out by IR35: one of the most appealing aspect of working under an umbrella company for contractors is that it makes them exempt from IR35, meaning there’s no need to worry about getting caught out.
  • Enjoy the benefits of employment: as an employee of the umbrella company, contractors will pay tax through the PAYE system, meaning no tricky tax returns. Umbrella contractors also receive statutory benefits such as holiday pay, sick pay and maternity/paternity leave. To find out more about umbrella sick pay and other statutory rights check out our handy guide.
  • Hassle-free contracting: the umbrella company takes care of business tasks such as invoicing, paperwork and admin, meaning more time to get on with the contract at hand.
  • Claim business expenses: many umbrella contractors can claim back legitimate business expenses which can be offset against your tax bill.

So, if you are concerned about being caught out by IR35 in 2021, an easy way to ensure to avoid the problem altogether is to go umbrella.

If you decide this is the right move for you, the next step will be to find the best umbrella company for your contracting needs.

Let Umbrella Supermarket help you find the best umbrella company in 2021

Umbrella Supermarket’s umbrella comparison tool allows contractors to quickly and easily compare umbrella companies in just 2 minutes, helping you find your perfect fit. After all, every contractor has different needs, meaning it’s important to find a company that works for you.

Whatever your preferences, from more money to help with things such as childcare credits, our umbrella comparison calculator will let you find the best umbrella company for you.

Simply enter a couple of details, hit go and compare companies best geared towards you in an easy to read list. If you’re ready to make the move to an umbrella company, let our umbrella calculator help you today.

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The Pros of Using an Umbrella Calculator

There are many advantages to using an umbrella calculator for contractors.

Umbrella calculators allow you to quickly compare thousands of umbrella companies across the UK, offering a clear overview of what you will receive from the company, including everything from your take-home pay, what benefits you will receive, and what services the company will offer.

To help contractors find out more, Umbrella Supermarket outlines the main benefits to using an umbrella calculator in 2021.

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Umbrella vs Limited Company: What to know when making the move this new tax year

The 6th April 2021 marked significant changes to IR35 legislation which impacted thousands of self-employed, limited company contractors operating within the private sector.

In light of the changes that have now rolled out, many limited company contractors are understandably considering their options and thinking about making the move to umbrella this new tax year.

To help make the decision that little bit easier, in this guide Umbrella Supermarket outline what contractors need to know about making the move from limited company to umbrella in 2021, to help you get on the right track.

 

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Umbrella Company vs PAYE: What should you choose?

Umbrella company vs PAYE is a question asked by thousands of contractors.

After all, it’s a big decision to make that will have a direct impact on your contracting career and day-to-day life, so it’s not one that should be taken lightly.

To help every contractor make the right decision for them, Umbrella Supermarket has put together this insightful guide outlining the key differences between umbrella and PAYE and the advantages and drawbacks of each.

avoid ir35

How can I avoid IR35?

As a contractor, you will most likely know about IR35 and upcoming reforms from April 2021.

These changes to IR35 legislation are set to badly impact many self-employed contractors in the private sector, so thousands are understandably worried. After all, getting caught out by IR35 can mean you end up paying more in tax than you need at the same level as an employee, without receiving the benefits of being employed, such as statutory rights.

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Umbrella Company Fees: How Much Should You Pay?

When deciding which umbrella company to work with, the fees they charge will inevitably play an important role in the decision-making process.

Umbrella company fees are taken directly out of the contractor’s income, so it is only natural that contractors want to ensure they are getting a fair deal.

To help contractors understand umbrella company fees, from how they are charged, what they will receive in return, and how much they should be paying, Umbrella Supermarket outlines everything there is to know about umbrella fees in this handy guide.

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Pros and Cons of Limited vs. Umbrella

Big reforms to IR35 legislation are set to come into motion from 6th April 2021 which will impact the thousands of self-employed, private-sector contractors out there.

For this reason, many of the contractors that currently operate through a limited company will be considering the umbrella company route as an alternative.

If this is true for you, it’s important to do your research to find out whether limited company vs umbrella is the best option for you in 2021.

To help make the decision that little bit easier, in this guide Umbrella Supermarket outline the key differences between limited vs umbrella, so you can get on the right track.

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What Does the 2021 Budget Mean for Contractors?

On 3rd March 2021 Chancellor Rishi Sunak unveiled his Budget in the House of Commons, outlining the government’s tax and spending plans for the year ahead.

Sunak announced a variety of measures he will put into place to help businesses and jobs that have suffered through the pandemic, as well as outlining a plan for the long-term recovery of the economy.

However, the question many contractors will be asking is how the Budget will impact the

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5 Benefits to Working with an Umbrella Company

Contracting through an umbrella company has become an increasingly popular option for contractors across the UK in recent years. After all, it is a route that offers contractors a range of benefits over other paths such as working through PAYE or being self-employed.

 

 

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How to Compare Umbrella Company Fees

If you are considering joining an umbrella company in 2021, or have been contracting through one for a while and want to ensure you are getting a good deal, it is important that you know how to compare umbrella company fees.

What you pay in income tax and National Insurance will be the same regardless of which umbrella company you choose, however the fees the umbrella company charges can make a big difference to your take home pay.

At Umbrella Supermarket, we know that every contractor wants to get a fair deal. To help, we explain how umbrella company fees work and how you can compare them to find the best deal.

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Job Retention Scheme for Contractors in 2021

The COVID-19 pandemic has impacted workers across the UK and contractors have been no exception.

Many of the 1.77 million independent contractors have either lost work altogether or have had contracts put temporarily on hold leaving them in a tricky position.

Fortunately, many of these contractors are eligible for the government’s Job Retention Scheme otherwise known as furlough, introduced to offer financial support for businesses and workers. This has been an essential source of income for many who have lost contract work as a result of the pandemic.

As we experience a third national lockdown, the furlough scheme has now been extended until the 30th April. So, if you find yourself out of contract work or have projects on hold, Umbrella Supermarket are here to explain what the Job Retention Scheme is, how it works and what this means for contractors.