Private Sector IR35 Could Cost Contractors £14,000

Private Sector IR35 Could Cost Contractors £14,000

19 June 2018

As the government consults on plans to extend IR35 rules to the private sector, self-employment organisation  IPSE claims that the changes could ‘strangle’ contractor living standards.

IPSE claims that the ‘inhibiting, anti-business’ policy could cost contractors an average of £14,000 per year in lost income.

Using average day rate (£430) and average weeks worked (42 weeks per year) figures from IPSE’s Freelancer Confidence Index, they calculate that a contractor’s take home pay will drop significantly.

The outside IR35 contractor will be subject to Corporation Tax and Dividend Income Tax of £26,768.16.

An inside IR35 contractor, meanwhile, would pay a total of £29,486.12 in Income Tax and Employee’s National Insurance Contributions (NICs).

At face value, this pay decrease does not seem that significant. But IPSE says that we also need to take account of extra expenses on the employer’s side which could impact on contractors.

Employers also have to pay a Employer’s NICs totalling £11,160 and an Apprenticeship Levy of £558.

If these additional costs are passed onto the contractor then they may see their take home pay fall by an extra £11,718.

All told, a contractor could lose more than £14,400 if public sector IR35 rules are applied in the private sector and contractors are judged to be inside IR35.

New IR35 rules were implemented in the public sector in April 2017.

The changes meant that instead of judging their own IR35 status, their employer would be judge it for them.

IR35 status is assessed by looking at a worker’s responsibilities, who determines the scope of the work, who decides when, where and how work is done, how the worker is paid and whether the engagement includes any benefits or reimbursement for expenses.

This change forced many contractors to be inside IR35 and prompted many contractors to use an umbrella company.

Umbrella companies have additional benefits for contractors that are deemed inside IR35. They receive full statutory employment benefits, including sick pay, holiday entitlement and maternity and paternity leave.

To learn more about proposed IR35 changes and how it could affect your take home pay, speak to a member of the umbrella.co.uk team today. Call: 0800 121 6513.