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Transport for London effectively bans ltd company contractors

Changes to IR35 legislation being introduced in April have led at least one public sector employer to force Limited Company contractors to go PAYE, Umbrella or face being jobless.

Sometimes a piece of legislation is introduced that makes very little sense at first glance, but then becomes clearer as you think about it. Sadly, the changes to IR35 in the public sector coming into force in April this year make little sense no matter how long you think about it.

April 2017 IR35 changes: the effect on public sector contractors

Imagine – you take out a contract for a mobile phone and pay the phone provider for the telecommunications services they provide you with. So far so good. Then a letter arrives from HMRC telling you that it is your responsibility to check that the mobile phone company is paying the VAT on your payments. What’s more, if you don’t check and it is then discovered that VAT has not been paid correctly, YOU can be fined.

This may seem ludicrous there is a very close parallel to the situation that is coming into force in April for contractors providing their services through Limited Companies (PSCs) in the public sector.

Transport for London sets an early deadline

Leading contractor news website, ContractorUK has obtained sight of an internal memo sent to its 2300 off-payroll staff which makes it clear that contractors working through their own limited companies face a stark choice.

The memo makes it clear that these workers have until the 17th February (more than 6 weeks before the changes come into effect) to either move to umbrella, direct PAYE, sole trader or effectively become jobless.

Replacing leavers

It seems from discussions that Contractor UK have had with some TFL insiders that there is likely to be an exodus of skilled staff from the Tube when the deadline is reached. Contractors working via Limited Companies tend to be higher paid individuals providing valuable services and if these people are forced down the PAYE route then they would see a considerable drop in income which can only be recouped by moving to the private sector.

The early deadline being imposed by TFL therefore makes a bit of sense as they are likely to need as much time as possible to recruit and replace the workers that will leave. In the meantime, could there be issues with service and safety on the Tube?

An increase in non-compliant umbrellas

There is almost certainly going to be an unwelcome increase in “umbrella” providers offering tax saving schemes for contractors who are seeing their income reduced. It really is a case of supply and demand – if there is a demand from contractors for a way to offset the losses they are inevitably going to suffer if they are forced to close down their PSC in order to carry on working, then there are plenty of unscrupulous providers waiting in the wings to tout for their business.

We’re written at length about these kind of schemes in the past and the usual caveats apply. If it sounds too good to be true, it’s probably not compliant and whilst it might give you a bit more take home, it might stop you sleeping at night.

Clarification

We will keep an eye on how things develop over the coming weeks and months and will make sure all of our clients, be they agencies or end-hirers are kept updated. We are expecting clarification from HMRC at some point in the near future and will make sure you are the first to know.

Where One Click fit in

The One Click Group provide a range of contractor services and we can accommodate all of the options being suggested by TFL (and likely to be imposed by other public sector organisations in the near future). We offer umbrella employment and self-employment options and for contractors who are able to continue working via a limited company, we can provide a full accountancy service.

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