DMS Posts, Other, PAYE, Tax

Inside and outside IR35: What you need to know

With rules set to change in the private sector from 6 April 2021, it’s important to understand what implications this might have on your contracts and tax bills.

The responsibility for determining your status in the private sector will shift to your client, if they are eligible. If you believe you are outside IR35, you’ll need to ensure your freelance contract and working practices clearly demonstrate your relationship as a contractor.

What’s the difference between inside IR35 and outside IR35?

Your status impacts the employment taxes you will pay.


Inside IR35
  • You pay the same tax and National Insurance as you would if you were an employee. 
  • You are only an employee for tax purposes, you have no employment rights.
  • Your client will be required to pay the necessary tax and NIC, which includes Employers’ NIC and the apprenticeship Levy where applicable.
Outside IR35
  • Nothing changes. You are paid a flat fee as normal and are responsible for managing your own taxes.

How and who pays the appropriate taxes largely depends upon a number of key factors: control over how the work is done, whether your personal service is required and mutuality of obligation. However, how you are set up in business can also be an influencing factor.

Not sure whether your contract is inside or outside?

You can check your employment status for tax using this tool from HMRC

Having a tax specialist review your contract can give you peace of mind. FSB members have access to a contract review service, for an additional fixed fee.

My last contract was outside IR35, but this one is inside?

IR35 applies on a contract by contract basis, so your status may differ depending on the contract agreed.

To remain compliant, you’ll want to brush up on your understanding of the new rules in the private sector.

If you don’t agree with your client’s decision about your employment status the legislation gives you the right to submit a written challenge to the Status Determination Statement and requires the end client to respond within 45 days to further explain their reasoning.

DMS Posts, PAYE

UPDATE ON CORONAVIRUS JOB RETENTION SCHEME (CJRS) – EXTENSION

HM Gov’s Coronavirus Job Retention Scheme  (CJRS) has been extended until the end of October 2020 but with changes to the system. The last effective date for workers being put on furlough is 10 June. 

The two big changes are the tapering of the financial support given to employers and the rise in their contributions. 

Financial support taper

June and July: HM Gov continue to 80% of wages up to a cap of £2,500 plus employer NIC and pension contributions. 

August: HM Gov still pays 80% of wages up to a cap of £2,500 but employers must pay employer NIC and pension contributions  .

September: HM Gov pays 70% of wages up to a cap of £2,187.50. Employers pay employer NIC and pension contributions and also 10% of wages to make good the 80% total  – up to a cap of £2,500. 

October: The government pays 60% of wages up to a cap of £1,875. Employers pay employer NIC and pension contributions and now 20% of wages to make good the 80% total up- to a cap of £2,500.

Employers are still entitled to top up above those minimum figures.

Flexible furloughing

This is to help businesses wean back employees on to the payroll after June. Part time or ‘flexible furloughing’ as it is called will allow employers and employees to agree to work part-time ( at their contracted full salary rate) and the Furlough Scheme will cover those days when employees are not working.

The matrix will become quite complex and detailed time sheets must be maintained. More detailed information about CJRS is expected on 12 June. For now, for further details on the existing CJRS system please see our old posts or for fuller details see HM Gov facts sheet at :-HMRC Fact Sheet

DMS Posts, PAYE

Extention to the Coronavirus JRS and flexible furloughing

Coronavirus (COVID-19) Job Retention Scheme useful links

Check if you can claim through CJRS

Claim for wages through CJRS

Job retention scheme calculator

Guidance on calculating your employee wages to claim

Steps to take before calculating your claim

Work out your employee’s usual and furloughed hours

Business support finder

Get help from HMRC if you need extra support

Working safely during coronavirus (COVID-19) business webinars – find out how to make your workplace COVID-secure

The UK Government, in consultation with industry, has produced guidance for business to help ensure workplaces in England are as safe as possible during the coronavirus pandemic. 

Register to join free webinars, hosted by the Department of Business, Energy and Industrial Strategy, to find out more about how to make your workplace COVID-secure.

Check a National Insurance number using Basic PAYE Tools

NHS test and trace: how it works

DMS Posts, PAYE, Tax

Coronavirus Job Retention Scheme – What do we know so far?

The Government announced an extensive package of support on Friday 20 March for employers coping with the commercial difficulties arising from Covid-19. This has been welcomed by employers, many of whom we have been speaking to, who have been extremely concerned about how to pay wages when revenues have dried up or they have been forced to close. Those businesses have been facing very tough choices around lay off, short term working and redundancies – while trying to balance the finances, needs of the business and the livelihoods of their staff and communities. 

The key measure announced to help employers is the Coronavirus Job Retention Scheme. Through this, employers can claim a grant to cover up to 80% of an employee’s wage costs. At the time of writing (19:00 on 22 March), we are awaiting detailed guidance as to exactly how this will work: but what do we know about the scheme so far?

Which employers are eligible for the scheme?

All UK employers can apply – you don’t need to be in any specific sectors, just pay people via PAYE. This includes businesses of any size and includes charitable or non profit. 

How do you access the scheme?

According to guidance on the Gov.uk webpage, employers will need to:

  • designate affected employees as ‘furloughed workers,’ and notify their employees of this change – changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation.
  • submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal. HMRC will set out further details on the information required.

It is unclear at this time what (if any) financial information an employer would need to provide to HMRC to show that you cannot cover staff costs due to Covid-19. 

The employer will be able to claim a grant of up to 80% of the employees wage for all employment costs, up to a cap of £2,500 per month.

The scheme will be backdated to 1 March (useful for employers who have already had to make lay offs) and will be open for at least 3 months, but extended ‘for longer if necessary’. 

As this is a reimbursement grant, the employer will make the wage payment to the furloughed employee and then be reimbursed by HMRC. At this stage the timescale is unknown, although the Chancellor suggested the first payouts could be made by the end of April at the latest. Please see here for more details of support that may assist with cash flow through this time.

What does Furloughed mean?

There is no previous legal term for this and it is a completely new concept to English Employment Law. The common definition of to ‘furlough’ is to allow or force someone to be absent temporarily from work. 

We understand that if an employer needs to make an employee redundant or lay them off, they can instead discuss with the employee them becoming classified as a ‘furloughed worker’. This would mean they would remain on the employer’s payroll, rather than being made redundant or laid off with no pay. Their employment would continue but they could not undertake any work for the employer while classified in this way.  

We are still waiting for the detail, but it seems most likely that if an employee has an express lay off clause in their contract, the employer could designate the employee as a furloughed worker. The employer would need to discuss this with staff. 

If the employee does not have a lay off clause in their contract, the employer is likely to need to have a discussion and seek the employee’s consent to be classified as a furloughed worker.  Given that the alternative could be redundancy, most employees are likely to agree. This may depend on what amount of paid notice, Statutory Redundancy Pay and holiday pay they would receive if made redundant. It may also depend on whether the employer is able to ‘top up’ the pay (so the furloughed worker is paid 100% not 80%) or offer for the employee to take or be paid for their accrued but not yet taken annual leave as well. 

Does the employer have to pay more than 80% to Furloughed Workers?

No – the early guidance is clear that the employer could choose to fund the differences between this payment and the employee’s salary, but does not have to.

At this point in time we don’t know whether the 80% grant is limited to just salary or whether it extends to include Employers National Insurance or costs for any benefits such as pensions, health insurance etc. Although it seems unlikely, this might mean that the sum actually paid to the employee is less than 80% of net salary, so care should be given by employers when communicating with staff to say that wage payments for furloughed employees will be in accordance with the scheme.  

We also don’t know how that 80% would be calculated for those whose monthly or weekly salary varies. Again at this stage it is best to communicate to those staff that payments will be in accordance with the scheme once clarified. 

Possible knock on impacts?

At this stage, it is right to feel relieved that there will be a safety net. Further clarification will be welcome, especially in the following areas which could become problematic as this develops:

  • If an employer need some employees to continue to work, how do they choose who to classify as a furloughed worker and who should work on? In the absence of any guidance, we would recommend a selection criteria akin to a redundancy selection matrix, making sure you avoid any discriminatory criteria. It will be interesting to see whether any Government emphasis is placed on giving furloughed status to those who have medical conditions that place them at higher risk from Covid-19 or those who need to care for dependants. Without that Government emphasis employers may face discrimination risks in doing so. 
  • How do you deal with dissatisfaction of those good employees that you ask to carry working on, when other possibly less high performing employees are offered and become furloughed?
  • How do you deal with those on Maternity? We expect it will be the position that those on maternity remain on maternity leave until they wish to return, at which point you would need to assess whether there is work for them or offer them to be furloughed. This could cause issues given that the payment to employees who are furloughed could be significantly higher than statutory maternity pay.
  • What about those who are currently off sick or self isolating on SSP? Should they be furloughed?
  • If there is a delay in payment by HMRC, can you pass that delay on to your employees? This seems unlikely to be encouraged and without provision by the Government may amount to a breach of contract or unlawful deduction of wages. HMRC has set-up a dedicated helpline on 0800 0159 559 for businesses and individuals in financial distress.

We anticipate HMRC will provide details in due course and we will provide updates regularly. In the interim we recommend you regularly check the Gov.uk website which is being updated most days.

DMS Posts, PAYE, Tax

Latest guidance for employers

HMRC has issued the latest version of the Employer Bulletin. This April edition has articles on a number of issues including:

  • Cash Allowances, Flexible Benefits Packages and Salary Sacrifice
  • Unpaid work trials and the National Minimum Wage
  • Diesel Supplement Company Car Tax Changes to meet Euro standard 6d
  • Student Loans
  • Construction Industry Scheme – helpful reminders for contractors and subcontractors
  • Welsh rate of income tax and Scottish Income Tax.

If you have any queries on payroll matters please contact us.

Internet link: Employer Bulletin April 2019