IR35: Firms Revert to Blanket Bans Ahead of April Reform

5th February, 2021
By 5. February 2021IR35, IR35 Guru, News
IR35 - Firms Revert to Blanket Bans Ahead of April Reform

With only two months to go until IR35 reform, there’s a sense of déjà vu as news of blanket assessments and limited company bans starts hitting contractor forums. While many companies who adopted these approaches a year ago did a U-turn when the reforms were delayed, many are now reverting to their original decisions.

National Grid has confirmed it will require all 560 of its contractors to go full PAYE through Pontoon Solutions, or work through an umbrella company chosen by them. The ban will also extend to all third-party suppliers, who will be asked to ensure that any staff provided are on a payroll. National Grid has denied that its policy is a blanket decision, stating: “A blanket determination is where an end user decides that all contractors are inside IR35. We are not doing this; we have changed our policy only to engage with contractors on an on-payroll basis.”

Royal Mail are another organisation who have confirmed they won’t extend current limited company contracts beyond the end of March 2020. Depending on the contractor’s role and skills, they may be offered an opportunity to join on a permanent or fixed employment contract. Where there’s a shorter-term requirement for the role, Royal Mail say they will discuss the option of a new contract via an Umbrella PAYE arrangement, but there will be no uplift in rates. Like National Grid, Royal Mail are taking the line that their policy is driven by business reasoning and not just IR35 changes.

The Switzerland-based insurance giant Zurich has also declared that it will only engage contractors who provide services via umbrella companies going forward. The company is known to have begun its IR35 preparations 18 months ago, ahead of the original April 2020 start date for the reforms, by using HMRC’s Check Employment Status for Tax (CEST) tool.

According to Zurich Insurance contractors, these assessments resulted in the “majority” of its off-payroll workers being classified as “inside IR35”. These individuals were then told that if they wanted to continue working for Zurich, they would need to do so via an umbrella company.

For many assignments, a contractor agreeing to trade via an umbrella company could prove a necessary requirement for placement. Although agencies are responsible for processing tax on payments made to ‘inside IR35’ contractors, many don’t have payroll systems in place. As such, introducing a third party such as an umbrella into the supply chain will be necessary to avoid falling foul of the Off-Payroll legislation.

For contractors working a variety of assignments both inside and outside IR35, taking a flexible approach in the first few months following the private sector roll-out could be useful. Following the public sector changes in 2017, some public organisations struggled to recruit contractors into roles deemed inside of IR35. This saw many relax their bans on limited companies and start to make proper IR35 assessments.

Major changes, such as the new RIIO price agreement with OFGEM, will require access to the right contractor skills. Depending on the industry, it may be worth contractors waiting until the dust settles after April 2021 to decide whether or not to close their limited company. However, if they have been fairly assessed and justifiably caught inside IR35, and are unlikely to be working on contracts outside of IR35 for the foreseeable future, it’s then advisable for them to close their limited company.

Although it’s possible to keep working through a limited company when a contract is inside IR35, there are few advantages. The end client or the agency will be responsible for  making the net payment into the limited company after deducting the correct tax. Effectively, this means that the contractor will be taxed as an employee, but without any employment rights. The government have so far refused to consider this issue in a review of workers’ rights, as advised by the Taylor report, claiming that it is a separate issue.

This content has been supplied by IR35 Guru

For now, contractors should take the necessary precautions to make sure they’re compliant by engaging with their agency and end client regarding assessment. If an inside determination looks likely, engaging the services of an umbrella company will ensure you’re able to keep working without interruption if your contract extends beyond April 6th. You can read more about your options if you’re blanketed here. If you’re starting a new contract, ContractingWISE has access to a wide range of hassle-free services that can help you with setting up a limited company or finding the right umbrella company for you. To talk to a member of our team, call: 0203 642 8679

Tags: , ,