IR35: Engagement types

Something I think there’s a fair amount of confusion on, and not about to get better very quickly, is rates and engagement types. Having had the discussion several times recently, I think it’s fair to say that clarification around the language used to describe roles and rates would be useful. It is absolutely critical that candidates, clients and recruiters understand exactly what is on offer and what that means in terms of legal liabilities and responsibilities.

How can you engage individuals? 

Recruitment and labour supply are often discussed in terms of contract or permanent, when actually it’s often more complex than that. This illustration shows some of the ways clients can engage individuals - it is by no means exhaustive. 

What is easy to see is that when we talk about off-payroll resource, there is an offer of both inside IR35 and outside IR35, depending on the working practices. As well as this there is the potential for other PAYE solutions - to be clear though, these are not ‘inside IR35’. We’ve used deemed employed in the illustration above to try to make differentiate those that are PAYE and those that aren’t. However, IR35 is only a factor when there is a ‘Personal Services Company’ involved, which is not the case for an umbrella or direct PAYE.

Why does it matter?

Well, the rate that is quoted for each engagement type legally must include or exclude different things. There’s also the ability to structure your income with more or less flexibility depending on the option you choose – it’s therefore very important you’re clear on what you’re signing up to.

I’ve included a table below which outlines this in detail. Broadly speaking, an umbrella rate or PSC rate is inclusive of all costs, both business and personal though different taxes (and levels of taxes) are payable. Direct PAYE is exclusive of all ‘employer’ side costs so the only deductions are those that are personal – this is the rate that would be comparable to a salary. Inside IR35 via a PSC must be exclusive of employer costs, but not all costs are payable and critically you do not get the same legal rights.

Assuming a client has a fixed pot of money for a specific piece of work then and therefore the client rate and agency margin remains unchanged then the rate quoted to the contractor will vary depending on the engagement type, I’ve included some illustrative figures at the bottom of the table so you can see how each option compares, both in terms of quoted rate and net pay.

Get in touch

No matter the engagement type, Evolution can help you and your business prepare for IR35. But the clock is ticking, so if you would like more information, please contact me as soon as possible. 

Jeni Howard

Head of Compliance

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