Being off-payroll means that you are paid for work by other means than a typical salary (also known as a payroll). Common examples of being off-payroll include freelance work or sub-contracting, so you would receive payment through an individual invoice, rather than being part of the company’s payroll. If you are working off-payroll for a client, or you hire contractors to work for your business, it’s crucial to understand the rules surrounding tax implications and IR35 to avoid potential penalties and legal issues.
IR35 is a type of legislation that allows HMRC to collect additional taxes if they consider that a contractor/freelancer could be, in fact, a ‘disguised employee.’
The purpose of IR35 is basically to make companies pay the right amount of tax, such as Income Tax and National Insurance. Off-payroll contractors pay less NI than they would otherwise pay if they were employed by their clients. IR35 was introduced to stop both companies and contractors from exploiting this.
Simply being off-payroll doesn’t mean that you’re not an employee. IR35 states that if you’re an off-payroll worker and treated like an employee, your client must place you on the payroll. You then pay employment taxes for your work.
If you’re off-payroll and are unsure whether you’re a disguised employee for one of your clients, ask yourself:
If your answer to any of these questions is yes, then it’s likely you are a disguised employee in the eyes of HMRC.
For more information about IR35 and the traps of becoming a disguised employee, visit our helpful glossary page! Our experts can help to ensure you are registered correctly and can help to guide you through the IR35 process.
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!