IR35 is a new law that allows HMRC to collect additional taxes if they consider that a contractor could be, in fact, a ‘disguised employee.’
The purpose of IR35 is basically to make companies pay the right amount of Income Tax and National Insurance. The reason they can pay the wrong amount is that the NI that self-employed contractors pay is lower than the rate employees pay.
Many contractors who work through a limited company benefit from tax efficiency. Although they don’t usually get employee perks such as holidays and sick pay, they have a lot of flexibility and control over aspects of their jobs.
Contractors and their clients sometimes try to take advantage of this tax efficiency . They do this by pretending to be self-employed when, in reality, they are practically employees of that company. For the client, they can evade making NI contributions, holiday pay, sickness pay and pensions. The two main benefits for most contractors are:
IR35 was introduced by HMRC with the aim of preventing this tax and benefit avoidance.
If you’re working through a limited company and providing services, you’ll almost certainly need to think about IR35. If you’re unsure whether this applies to you in the eyes of HMRC, ask yourself:
If your answer to any of the above questions is yes, you could potentially be a disguised employee – at least according to HMRC. They might make your client place you into their payroll and will tax them Income Tax and NI at employee rates. It is always important to check – even if it turns out that you’re not in this category, it’s better to be safe than sorry… and definitely better to be safe than to be hit with a hefty fine!
Of course we can! We know that as a freelancer or contractor it can be confusing to handle your own accounts and tax records, so contact our experts for advice and support today!
If you are a self-employed contractor, remember to file your Self Assessment by 31st January the year after the tax year you’re paying for. For example, if you’re paying your 2023/2024 tax return, this should be paid by 31st January 2025.