Offshore work and umbrella companies: Ask Andy Answers
It’s your weekly reminder that 6th April 2021 and the IR35 private sector reforms are very nearly here. And by ‘very nearly here’, we mean a matter of weeks away. If you have any questions at all about IR35, now is the time to get answers, and who better to ask than Head of Tax at Kingsbridge, Andy Vessey?
Andy has been working with IR35 for almost 21 years and has defended more than 500 cases against HMRC, winning most of them. We’d say that what he doesn’t know about IR35 isn’t worth knowing, except there isn’t anything he doesn’t know about IR35. This week, he’s received questions about working offshore, pension contributions, and umbrella companies, so grab a cuppa and find out more. And if you want to find out how to submit your own question to Andy, read on at the end.
I am working offshore via an employment agency. Where will I lie within IR35?
If you are a UK tax resident for the year(s) that you are contracting to the offshore end client, then you will need to consider whether or not the contract falls inside or outside of IR35, regardless of the location of the end client.
If my PSC makes employer (ER) contributions to my Self-Invested Personal Pension (SIPP), for 100% of the fee charged to my public sector client, will that negate the need for an employee (EE) NIC deduction?
While there would be no employee NIC charge in the situation you have described, you may have to enter into a salary sacrifice arrangement if you are paying yourself a regular salary -see HMRC guide salary sacrifice for employers for further information. I note that your end client operates in the public sector, so if they have decided that your contract is within the scope of the off-payroll rules then your PSC’s pension contribution will not be accounted for in their payroll calculations as the fee-payer is not responsible for operating tax relief on private or occupational pension contributions. See HMRC guidance ESM9090.
I don’t really see that IR35 applies to me. I’m a contract design draughtsman and have worked through my limited company for over 40 years and that seems to have been satisfactory in all that time. The problem seems to be, in the last few years, that public authorities, such as the NHS, County Councils etc., don’t want to engage limited company contractors except through umbrella companies who, as far as I can tell, simply charge for their services in order to do what I have done through my limited company all along. Can you please explain to me how umbrella companies are acceptable to clients when my legitimate limited company is all of a sudden not suitable for purpose?
I am afraid it is at the end client’s prerogative as to how they engage their contingent workforce. The preference to use contractors via umbrella companies is due to risk aversion as it means that they don’t have to engage with the off-payroll rules. This is because umbrella companies fall outside of the legislation due to contractors being employed by them and therefore suffering PAYE tax and NIC on their earnings. End users, therefore, don’t have to consider the employment status of a worker and also avoid the risk of being penalised by HMRC if they get it wrong.
How to Ask Andy
If reading these questions has sparked one of your own, or maybe you’ve had one burning away for a while, it’s easy as anything to put it to Andy. Simply complete our form, giving as much detail as you need to (don’t worry, we always anonymise everything before it goes on the blog) and Andy will do his best to answer. Each week, we publish his answers right here on the Kingsbridge blog for you.
In the meantime, what else can you do to satisfy your concerns about how IR35 applies to you? We’d recommend taking a look at the Kingsbridge IR35 Status Tool. Developed by Andy himself, for just £50 plus VAT it will give you an instant, accurate answer as to whether your engagement falls inside or outside IR35. All you need to do is answer some carefully crafted questions with yes or no answers that will give a full view of your contract and working practices. You’ll then be issued with an inside or outside IR35 determination, along with a full report. As if that’s not clever enough, if your result is indeterminate, it will be handed over to one of Kingsbridge’s in-house IR35 specialists for review, who, after examining the nuances of your case, will then get back to you with your result. You will have peace of mind, and your client will have confidence in their own determination.