Are you being treated lawfully as a contractor? A tale of Network Rail, Employer's NI & IR35
Another month, another IR35 story but this one isn't about the rollout to the private sector, but rather public sector organisations allegedly making unlawful deductions from contractors' fees.
In this case, the public sector body in question is Network Rail, as reported recently by ContractorCalculator. The accusations pertain to two separate contractors who were negotiating contracts with Network Rail in April 2018 and September 2018 respectively.
They were given an IR35 Factsheet' from Network Rail, informing them of the impact the IR35 reforms would have on their contract and this document stated that, if appropriate, Employer's National Insurance contributions would be deducted from their fee: If a role is deemed to be inside of IR35, the fee-payer will calculate Income Tax and primary (employee) National Insurance Contributions (NICs) and pay them over to HMRC. These amounts will be deducted from the agreed fee for the work provided. Network Rail have also taken the decision to deduct employer's NICs from the agreed rate.
However, the IR35 legislation states that Employer's NI be paid by the fee-payer on top of the agreed rate of pay. In fact, HMRC's own guidance states: They [the fee-payer] cannot lawfully deduct the secondary NICs from a fee that has been agreed, but could, depending on the contractual terms, negotiate a lower fee.
Network Rail has claimed that this Factsheet was out of date and that they are, in fact, compliant with IR35 laws. However, evidence seen by ContractorCalculator suggests that they had been deducting Employer's National Insurance from contractor fees between April 2017 and September 2018 at the very least. The report goes on to suggest that this could be happening in other parts of the public sector, unlawfully depriving contractors of part of their fee.
How to ensure you're being treated lawfully
At the contract negotiation stage, enquire as to deductions and ensure they are only deducting tax and primary Class 1 NICs. They should not be deducting Employer's National Insurance, otherwise known as Secondary Class 1 NICs.
If you are already being paid by your public sector client and fall inside IR35, check your pay slips to see if they are deducting Employer's National Insurance. If they are, they are not treating you lawfully.
What to do
If you're operating in the public sector, within IR35, and you think Employer's National Insurance is being deducted from your fee, do check with your client. It could be an honest mistake, after all.
However, if they are knowingly deducting it and don't offer to correct the issue, you can always speak to HMRC to find out where you stand. At the end of the day, it's money that should be part of your fee and should be being covered by the fee-payer. As HMRC states, they can negotiate a lower fee with you to cover the cost of Secondary Class 1 NICs, but they shouldn't deduct them directly from your fee.
Being treated fairly as a contractor is vital, so if you're looking to renew your contractor insurance, be sure to get a fair, honest quote from us.