Royal London Contractors IR35 Shock – Friendly Insurer Cuts Contract Rates

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Royal London Contractors and IR35
Royal London Contractors and IR35

Royal London Contractors Get IR35 Shock

Royal London Contractors got a shock when they were suddenly told that they are effectively no longer contractors. Because of the new IR35 reforms from April 2020 contractors will have to go PAYE.

But there was another shock coming to Royal London contractors. The PAYE and National Insurance would not be coming out of their current rate. It would be coming out of their current rate less a little under 14%.

This 14% will be taken off the contractor’s rate to cover employers National Insurance, the apprenticeship levy and 3% employers pension.

Questions on Royal London Contractors IR35 Dilemma

  1. What will a Royal London Contractor earn now?
  2. Who Will Royal London contractors be paid by now?
  3. How long have the contractors got to make up their minds?
  4. What will happen with the VAT?

What will a Royal London Contractor earn now

So, a contractor earning a typical £600 a day there will actually have his or her rate reduced to £511.51. Then PAYE and NI will be deducted from that.

However, even from that figure holiday pay of around £70 will be deducted after Tax and National Insurance. It’s only after all that that the contractor is paid.

Who Will Royal London contractors be paid by now

It seems that the contractors will now come under the aegis of giant umbrella company in the future. There is an agency in the middle but it is not clear what their role will be now other than just invoicing.

Unlike with other financial companies the Royal London contractors are being given just two options:-

  1. Go PAYE with Giant after a 14% rate drop
  2. Leave

How long have the contractors got to make up their minds

As is usual with these things the contractors are getting very little time to make their minds up. The Royal London contractors have been given till just the 6th of December to make their minds up.

February the 14th, Valentine’s Day, is the last day when the Friendly Mutual say that contractors can use their personal service companies.

They will find out more details from giant next week. However, some of them will meet with giant after the date when they have to decide if they are staying or are going.

The contractors feel that they are being railroaded. As you can imagine morale is low. Some are talking about leaving but others have to pay the bills and will reluctantly comply.

In the past week HSBC did the same thing. They and the agency, Reed, cut contractors rates by 23% before applying PAYE tax and national insurance.

However, here is the big question.

What will happen with the VAT?

Royal London contractors on £600 a day would add £120 VAT with the VAT rate being 20%. So, the company currently pays £720 for the contractor.

However, after the contractors go PAYE who gets that £120? Remember that it will probably be nearer £140 as the agency has to add their bit to contractors and add on VAT.

So, who will keep that £140 a day? It looks as if it will be the companies.

Should it not be the contractors?

We will have more on this in an article coming soon.

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