Since April 2017, many PSCs and agency workers have been working for the public sector under the IR35 Off Payroll rules.
Under this arrangement, if the public sector end user, having reviewed the working practices, deems the work being undertaken by an individual provided by an intermediary/supplier (Personal Service Company, (PSC), agency, or umbrella company) to fall within the IR35 Rules, the entity paying the worker who provides the service is required to deduct PAYE tax/NIC from the invoice payments made and remit those deductions, with employers NIC, to HMRC. The worker is not an employee of the public sector end user, or the entity paying them if they operate out of a PSC, as their employment rights stay with the PSC.
HMRC have now confirmed that the furlough grant scheme is available to the IR35 Off Payroll workers providing services to the public sector clients, if they are unable to continue to provide their services due to Covid-19. This includes those operating out of PSCs, PAYE agencies, and umbrella companies.
The scheme is available to all IR35 workers, regardless of length of contract with the end user, except where the IR35 workers are about to end their contract/assignment regardless of Covid-19. The furlough scheme is available up to the point where the assignment was due to expire, there is no obligation for the end user to extend the assignment if there is a natural end.
If an IR35 worker is not able to provide services due to Covid-19, they should alert their supplier (PSC/agency/umbrella company) explaining why they are unable to work. The supplier then discusses with the end user the possibility of using the furlough grant scheme.
The decision on whether to operate under the furlough grant scheme lies with the end user/supplier, not the individual IR35 worker. This mirrors the fact that in employment, it is the employer that decides whether to operate the furlough scheme in respect of their employees.
Where IR35 workers are receiving furlough payments under the grant scheme, they are not eligible to claim under the Covid-19 Self-Employed Income Support Scheme.
HMRC are expecting to be able to release the portal, under which furlough grant claims can be made, by the end of April 2020. The furlough grant scheme is available initially for 3 months from 1 March 2020 to 31 May 2020. Under the furlough grant scheme, IR35 workers should be paid 80% of their pay rate up to a maximum of £2,500 per month. This can be backdated to 1 March if the services were not able to be provided from that point due to Covid-19.
Calculating payments under the furlough grant scheme
Calculating payments that usually exceed £2,500 per month
The £2,500 per month cap relates to gross pay, excluding statutory costs such as Employers NIC, holiday pay, apprenticeship levy and pension, and any supplier margin. These costs should continue to be applied where applicable as normal in addition to gross pay rate paid to the IR35 worker.
Any IR35 worker whose gross pay (exclusive of statutory costs or supplier margin) normally exceeds £3,125 per month will be subject to the cap (£3,125 x 80% = £2,500). In this case, the worker will only get paid a maximum of £2,500 under the furlough grant scheme. All calculations to determine whether an IR35 worker’s earnings hit the threshold of £2,500 per month should be based on the number of hours or days they’re engaged to work to a maximum of 20 available working days in the month. For hourly paid workers the same principle should apply, by calculating the average daily pay and multiplying this by 20. Calculations for IR35 workers who work part time (for example, 3 days a week) should use the same maximum of 20 working days in the month. In this example the working days over a month would be 12 days (3 days per week x 4 weeks).
Timesheets submitted should be submitted to the entity paying the IR35 worker and should have a daily cap of £125 per day so that the monthly amount is £2,500, (20 days x £125 per day = £2,500).
In the event that an IR35 worker exceeds the cap based on their normal working patterns, but they work part time (such as 3 days a week) they should input a time sheet for every weekday (Monday to Friday) over the period they are unable to work as a result of COVID-19 at £125 per day. For example, in the case of a worker who normally earns £300 a day but works only 3 days a week, their normal working pattern would mean they would ordinarily work 12 days in a calendar month based on the maximum 20 available days. This would take their total gross pay to £3,600. If they are unable to work as a result of COVID-19, they should input a timesheet for 5 days each week they are off at the rate of £125 per day. This results in reaching the £2500 per month cap. If the worker was unable to work for a period of less than a week (for example due to office closure for 3 days for deep cleaning), they should input a timesheet for each day they are unable to work (3 days) at £125 per day regardless of the fact that they would usually not work on some of those days.
Calculating the payments for IR35 workers whose pay is usually less than £2500 per month.
Suppliers will be required to conduct a calculation that allows them to identify and pay the 80% figure. The simplest way to achieve this is for workers to submit a timesheet in the normal manner where possible, but for any period of COVID-19 related absence, timesheet submissions should be for 80% of the normal working hours.
Hourly pay example:
- If an IR35 worker’s usual hours are 37.5 per week that is equivalent to 7.5 hours per day, so for furlough pay a timesheet should be submitted for 6 hours per day for absent days due to COVID-19 (7.5 hours x 80% = 6 hours).
- If working part-time, the hours should be amended accordingly. For example, if the normal hours worked each day are 5 hours per day, a timesheet should be submitted for 4 hours if absent due to COVID-19 (5 hours x 80% = 4 hours).
- In the event that an IR35 worker usually works different hours on different days this can be accommodated by ensuring that the total hours submitted for the week are an accurate reflection of 80% of the normal hours submitted in a normal working week.
Daily pay example:
- If usual work days are 5 days per week, 80% is equivalent to 4 days per week and a timesheet should be submitted for 4 days for the absent days due to COVID-19 (5 days x 80% = 4 days).
- If working part time and the usual days are 3 days per week, that is equivalent to 2.4 days per week (3 days x 80% = 2.4 days rounded up to 2.5), and a timesheet should be submitted for 2.5 days for the absent days due to COVID-19. Care should be taken on rounding, and overall adjustments should be made as appropriate to ensure that the overall weekly hours do not exceed 80% of working normal hours.
IR35 Ad hoc Payments
Where workers are on live assignments at the time at which they became unable to work as a result of COVID-19, and they normally work on an ad hoc basis, the furlough scheme is still available to them. To calculate monthly and weekly pay for ad hoc working patterns, suppliers should conduct a retrospective view of the previous 12 weeks (or as many weeks as the IR35 Worker has been on assignment) to determine the average days or hours worked per month. This average should be used to underpin the calculation of 80% of gross pay to the £2,500 cap as outlined in above.
Details of the HMRC guidance can be found here .
Further details on the furloughing process can be found on our Coronavirus hub here.