As a contractor, understanding IR35 and whether or not you fall inside the scope of the legislation can be a challenge. There is a lot of information surrounding the legislation, its technicalities and how you could be affected.
But what is IR35?
Essentially, IR35 is the anti-avoidance legislation created to ensure employees are not “disguising” themselves as self-employed through the use Personal Service Companies (PSCs) in order to avoid paying national insurance and other tax contributions.
In accordance, HMRC, have developed a set of standards to which they define self-employment, determining that if you operate in a manner with the same level of risk, responsibility, liability and control as a permanent employee, it is likely that you will be caught ‘inside IR35’.
Falling ‘inside IR35’, simply put, will result in a contractor not being able to operate through their limited company but instead, having to operate through a PAYE scheme or Umbrella Company. This will result in all income being taxed at source and as a result much higher tax bills than what a contractor operating under a limited company would pay.
If a contractor continued to operate through their Limited company and were found to be ‘inside IR35’ following an IR35 enquiry, HMRC will raise a determination for the income tax, NICs, interest, and potentially a penalty which should have been paid during the accounting period in question. This can run into the tens of thousands of pounds.
There is a lot of uncertainty between contractors, their agencies and the end client as to how the changes are going to affect their current jobs and engagements.
WE HAVE A SOLUTION TO ENSURE ITS BUSINESS AS USUAL SO FAR AS POSSIBLE.
We have defined IR35 processes and criteria, and we guarantee that should any contractor meet these guidelines they will be ‘outside IR35’.
We have a dedicated team of IR35 experts to ensure you are compliant with all IR35 regulations, ensure you minimise your losses and most importantly, ensure you can continue to work through your Limited Company.
We will independently assess your IR35 status and make the determination for you. We will stand over the determination by covering any tax losses, thus taking away the financial liability for you, the recruitment agent and the end client.
You will receive a 20-page independent status review and verified certificate all approved by HMRC which you can then provide to your recruitment agent or end client along with our indemnification.
As well as this, if we find your contract to be ‘inside IR35’ we can advise both you and your agency on the changes they need to make in order to increase the likelihood of the re-assessment being outside IR35 and business as usual.
Check out our “IR35 guide” and our “IR35 FAQs” to ensure you understand the implications of IR35, what you need to do and how we can help.
What is IR35?
IR35 is legislation that was introduced to combat tax avoidance by individuals who supply services to clients through a limited company, when they are doing the same job and operate under the same constraints as an employee, this is known as” disguised employment.”
This legislation states that contractors who are in fact “disguised employees” should be subject to the same Income Tax and National Insurance Contributions as any regular employee rather than the tax breaks and benefits associated with a Limited Company.
For example, if you receive paid holiday and sick pay from your client yet still operate through a Limited Company, this will be deemed as “disguised employment,” and you will be liable for the same tax as an employee.
What does ‘Inside’ and ‘Outside’ IR35 mean?
If you are inside IR35 you will need to operate through an Umbrella Company or seek a different contract. This is due to the payments relating to that assignment needing to be accounted for using the IR35 regulations. This means you will be charged Tax and NIC charges as you are deemed to be employed.
If you are outside IR35 it is business as usual. You can operate through your limited company and you can continue to receive your dividends from the company without deduction of additional tax and NIC.