Re: Changes to payroll rules for contractors based in the UK
Further to the IR35 status determination letter issued by your client (Ryanair) on the 22ND March 2021, please find below further information on the new rules and an explanation of how the changes are expected to be implemented.
On the 6th of April 2021, the Off-payroll working rules (IR35) will change. These changes have been introduced by the UK Government. The changes can be summarised as follows:
- Under the new regulations your client (this currently being Ryanair) is now responsible for determining the employment status of your contract work.
- Under the existing rules this had been the responsibility of the individual contractor.
- Under the new IR35 rules the fee payer (your agency - McGinley) will now be deducting tax and National Insurance from your agency pay before your pay is sent to your Irish limited company. Please find below details of how the new process will work.
Please note the changes described below are expected to be applied from the May 21 payroll for April 21 flying hours. The April 21 payroll for March 21 flying hours is expected to operate in the current format.
- Payroll taxes and national insurance: From the May 21 payroll for April 21 hours worked, your agency pay will be payrolled through McGinley Aviation and tax and National Insurance will be deducted by them and paid by them to HMRC.
- Net agency income after tax and national insurance: Your resulting net agency pay will then be paid to your limited company account. O’Connors will then process the net pay amount through your limited company. This will be split as normal between allowable expenses and salary. This income will NOT be subject to any further tax / National Insurance deductions at this point as these have already been made by McGinley
- End of Tax Year Reconciliation: This will be carried out through the completion and filing of a UK tax return by ourselves on your behalf. You will then be informed of any over payment/under payment of tax, taking into account your personal allowance, student loan payments due and any additional tax allowance due to you.
- National Insurance number; It is vital that you obtain a UK National Insurance Number if you do not have one as soon as possible. We will be unable to file the UK tax return without this number.
- COVID 19 Furlough Claims: We will continue to make claims under the furlough scheme through your Irish limited company.
- 5% General Expenses: Under the new regulations, it is no longer possible to claim the 5% general allowance previously applied to your payslip.
- Student Loan Deductions: These will no longer be made by your Irish limited company. These will be calculated through your UK tax return– we are currently looking at whether it will be necessary to withhold money for this and we will advise further on this in due course.
- Pay Scenarios with new IR35 rules: We are currently awaiting our new payroll software for the 21/22 tax year. Once we have this available to us, we will work to prepare sample payroll scenarios to show how your new payroll calculations will work. Once this has been completed, we will send out a further update to all clients.
- General Expenses: These are currently under review and we will update you as to any changes in due course.
Should you have any questions regarding the above please contact us via email.