IR35 workers and statutory payments

HMRC have recently issued some clarification on IR35 workers entitlement to statutory payments.

Whilst a worker working under an IR35 contract for a large or medium sized client, is added to the payroll, this is only as a deemed employee and doesn’t entitle them to statutory payments which include Statutory Maternity, Paternity, Adoption, Parental Bereavement and Shared Parental Pay. Once paid, an employer can then substantially, if not wholly reclaim from the government. Note however that COVID-19 measures aside, this excludes Statutory Sick Pay which isn’t normally reclaimable. 

Entitlement to these statutory payments requires instead that the worker appears on the payroll of their “real employer” i.e. normally their own personal service company (PSC).

In respect of those workers who may wish to access these statutory payments, an issue therefore arises if they have only extracted funds from their PSC via dividends since they will not be able to show that they received sufficient earnings to preserve entitlement, which for most statutory payments is the lower earnings level.

Additionally, if the PAYE scheme has been closed, their PSC will also have no mechanism to pay (and in some instances reclaim from HMRC) the statutory payment.

As any salary that does get reported through the company payroll will not be subject to tax and NIC, provided it’s below the level of net IR35 monies received, IR35 workers who do wish to protect their entitlement to these statutory payments may wish to consider the need to extract an amount of salary from their PSC at least equal to the lower earnings level along with any other implications this may have e.g. auto enrollment.

Should you have any questions or require any further assistance, please contact the office and we can direct your query to one of our specialists. You can find contact details on the Our People section of our website. Alternatively, call 0330 024 0888 or email enquiry@larking-gowen.co.uk

Tessa Brown