Agency Worker Regulations (AWR)
How it works:
Agency worker Regulations (AWR) legislation came in to force in 2011. The aim of the legislation is to give agency workers (contractors working through an umbrella company) equal treatment, in terms of pay and conditions, with permanent staff.
AWR only applies to temporary agency workers on a temporary contract working through an employment business at a hirer's site. The legislation impacts PAYE temporary workers, those contractors working through umbrella companies and those working through personal service companies that are not considered to be genuinely in business on their own account.
After 12 weeks agency workers’ relevant terms and conditions of employment must be no less favourable than they would have been if hired direct to do the same job.
The regulations apply to working time, holidays and some types of pay.
They do NOT cover areas such as sick leave, maternity/paternity pay, redundancy and non-performance related bonuses
What you need to know
IR35 was introduced to put an end to tax and National Insurance Contributions (NICs) avoidance through the use of intermediaries. The legislation aims to ensure that a fair level tax and NICs are paid if the relationship between a contractor and a company would be considered as one of employment if it were not for the use of an intermediary.
IR35 will not need to be considered if you can prove that you are self-employed.
From April 6th, 2020, it is the responsibility of the end-client to assess the employment status of the contractor (insider or outside IR35).
If it’s determined the contract is inside IR35, Sphere Digital Recruitment will help you work through one of our approved umbrella companies. PAYE deductions including income tax and NICs will be made from your agreed pay rate and this will affect your take-home pay.
f it’s determined the contract is outside IR35, Sphere Digital Recruitment will pay your limited company the agreed rate without PAYE deductions.
There are exceptions to these regulations - for a list of FAQs, click here.
At Sphere, we are experienced with IR35 and have people on hand to give advice on this area. Feel free to contact us if you have questions via email@example.com
VAT and Contractors
In most cases it makes sense to register for VAT if you have registered your own limited company. It is compulsory to do so if your company’s gross income exceeds £82,000 over any 12-month period.
There are both cash and profit advantages for registering for VAT.
- You get paid with VAT included and will only have to pay this to HMRC at the end of the period
- You can claim back VAT on purchases
- You may qualify for a flat rate scheme
The Flat Rate scheme means that you agree to pay HMRC a proportion of the VAT that you receive from sales. This only applies if annual gross income is less than £150,000 and has the advantage of reducing the time spent on administration and can result in a surplus. However, you cannot reclaim VAT on purchases
- Some business, such as banks and charities, will not be VAT registered and as such will not be able to claim VAT on purchases. However, you could set up a second non-VAT company that only works with non-VAT businesses.
- Being VAT registered means filing returns and remaining compliant in case of inspection. There are many accountants that will provide services for this.
Insurance for contractors
Insurance is very important for contractors. As well as providing peace of mind, insurance also provides further evidence to remain outside of IR35 and it can often be a contractual obligation with clients. There are 3 main types of Insurance for contractors.
- Employers Liability Insurance
- Public Liability Insurance
- Professional Indemnity Insurance
Employers liability insurance
This covers claims made against you by employees or subcontractors. Clearly the likelihood of a claim being made is very small. However, if you have more than one employee it is a legal requirement and many clients will insist on you having this. The minimum level of cover is £5m but typically insurers will start at £10m.
Public liability insurance
This covers all costs relating to damage or injury sustained by third parties. For instance, if you damaged your clients’ equipment or if you were liable for injuring or damaging a third party. This will cover all legal costs and damages if you are liable.
Professional indemnity insurance
This protects you against any claims resulting from a problem with your work or professional advice. For instance, this would cover legal costs and damages resulting from a negligence claim.
Typically, insurers will provide all 3 types of cover for less than £300 a year. Just search any good comparison website.
You may also wish to cover yourself against business interruption, jury service, income protection and office contents.
If you have any questions on insurance for contractors please contact us at Sphere.
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