The Public Sector and IR35
In recent months the public sector has been under a great deal of scrutiny from the Government, who feel that any contractor earning more than £220 per day on a contract for 6 months or longer is, potentially, a deemed employee and, if working via a PSC, may be guilty of tax avoidance.
Under threat of financial penalties (allegedly up to 5 times the contractor’s annual effective rate!) many Government Departments seem to have taken the warnings very seriously indeed. New contracts being offered come with the proviso that the contractor can prove that they are paying themselves via PAYE and therefore are making IR35 deemed payments, or they need to provide evidence that they have taken HMR&C’s online business entity test and are deemed to be at low risk.
Many high level contractors are not happy with the new developments. They feel that their integrity is being questioned and that their tax arrangements are their own business and nothing to do with their client. Some are resigning from their contracts in protest of the new arrangements; unfortunately for them it appears that non-compliance with the client’s request may result in the contractors’ details being passed to HMR&C.
It is not unreasonable to assume that contractors leaving contracts when their IR35 status is questioned are likely to be high on HMR&C’s list for investigation.
An Umbrella Company removes the burden of IR35 completely. As you will be an employee of an Umbrella Company and will be paid via PAYE, the IR35 rules do not apply to you. This means you can work without the worry of any additional tax bills and penalties.