Pensions and National Insurance: Ask Andy Answers

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Sarah Henderson
04 May 2021 @ 03:05 pm
in category: IR35

It’s hard to believe that the private sector IR35 reforms have been with us for a month already, but here we are, and it’s May. As contractors find work opportunities opening up as lockdown is eased, so too are they encountering questions about IR35 and their status determination. Luckily, Kingsbridge’s Head of Tax, Andy Vessey, is continuing to answer your questions throughout the coming month. 

So, read on for info on umbrella companies, pensions, employer’s National Insurance, and other IR35 queries from contractors like yourself. 

This article is for information purposes only and should not be seen as financial advice. You should always consult with your accountant for any tax advice.   

Is it OK if I accept work under an umbrella company inside IR35? 

Working via an umbrella is outside of IR35, so there are no IR35 implications as you are an employee of the umbrella and will have PAYE tax and NIC deducted from your pay. 

If your present contract is assessed as inside IR35, can you still pay into an existing company pension? Are the payments made before deductions for tax and NI? And is there a limit to how much can be paid into the pension? 

Where the PSC contributes to an occupational pension scheme, this may qualify for tax and therefore does not change as a result of the IR35 reforms. The company will be receiving its fee net of tax and NIC before it can then make any pension contributions. Depending on the size of the contributions, HMRC may seek to challenge pension contributions on the grounds that they have not been incurred wholly and exclusively for the purposes of the trade. It has been mooted that HMRC are looking for a test case to block loss relief claims made by PSCs who are caught by the off-payroll rules, on the grounds that the company’s trade is not being carried out on a commercial basis if the contractor is effectively working as an employee. You are permitted to make pension contributions up to the annual allowance of £40K but you also have to be mindful of the lifetime allowance of £1,073,100. It is always advisable to take professional advice from an IFA and your accountant before making pension contributions. 

I’ve been found inside IR35 but disagree. My contract, agreed with the client, says the client will accept a substitute but because they have to supply PC and onboard with passwords etc., they basically don’t agree. I think this is irrelevant. 

Also, as a contractor, we have to supply business credit cards for travel on client business and then claim back. My opinion is that this is a financial risk but my client says: “Based on our understanding of the legislation and the guidelines HRMC are providing for the off-payroll legislation, we believe the answers in the CEST determination have followed these guidelines provided and have been applied in the right way. Therefore, there will be no changes to the answers provided and the determination remains.” Virtually all contractors have been found inside. 

With reference to the substitution issue, this depends on how practical it is for you to send a substitute in your place. If it wouldn’t take too much time to provide a substitute with a PC, password etc., then this should not prevent you from being able to exercise your contractual right. However, the problem you have is that if the end client is saying that substitution is impractical and that it is not realistic, then this will point towards your own personal service being a requirement of the contract. However, there are other ways of demonstrating that your personal service is not a requirement, i.e. sub-contracting significant parts of your work and/or engaging assistants to help you with integral parts of the work. You may wish to challenge both the end client and agency as to why you have a contractual right of substitution which, based on the end client’s evidence, is not accurate and whether or not your right is reflected in the upper-level agreement between the agency and end client. Concerning the financial risk issue, I agree that your business is exposed to a degree of financial risk as it is meeting its own business expenses and re-charging them at a later point. However, this point alone is not enough to place your contract ‘outside’ IR35. 

Is it legal for my agency to reduce my current rate of pay to pay for employer’s National Insurance if I go Deemed Limited when IR35 comes in? 

Employer’s NIC cannot be deducted from a worker’s pay as this is would be an unlawful deduction. A contractor’s rate would have to be adjusted to take account of employer’s NIC and the contractor would have to agree to that revised rate. 

How to Ask Andy… 

We’re still taking questions for Andy, so to submit your own simply visit our website and complete the form. Andy will do his best to answer through our blog. 

If you’re looking for clarity on your IR35 status, then you can also check out the Kingsbridge IR35 Status Tool, our unique hybrid tool designed by Andy himself. Simply answer some carefully crafted questions to get an instant inside or outside determination. And if your status is borderline, one of our in-house IR35 specialists will manually review it for you. All for just £50 plus VAT. 


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