IR35 and what you should know as a contractor
about 3 years ago by Elizabeth Deans
What is the new Off-Payroll Tax and when does it come into force?
IR35 was introduced to tackle the problem of ‘deemed employment’. This is where organisations engage workers on a self-employed basis and usually through an intermediary, rather than on an employment contract. Despite having been in force since April 2000, IR35 is heavily criticised by tax experts and the business community as being poorly conceived, badly implemented by HMRC and causing unnecessary costs and hardships for genuinely small businesses. This is why the Government is replacing the original IR35 legislation with the new Off-Payroll Tax, which was initially introduced into the public sector in April 2017, and will be extended to the private sector from April 2020.
Who will be affected by IR35?
If you are a genuine contractor, freelancer, interim or consultant, you should have nothing to fear from IR35. This is so long as you take the time to understand how the legislation works and apply best practices to ensure it does not apply to you. In short, IR35 involves applying three main principles to determine employment status from the Ready Mixed Concrete case. These are known as the principal ‘tests of employment’:
Control: What degree of control does the client have over what, how, when and where the worker completes the work
Substitution: Is personal service by the worker required, or can the worker send a substitute in their place?
Mutuality of obligation: Mutuality of obligation is a concept where the employer is obliged to offer work, and the worker is obligated to accept it.
What to do if you are affected by IR35?
Don’t panic! There will be lots of information available before April 2020 so that you can find out what relevant taxes you need to pay. Under the new rules, the fees paid to a contractor, called the "direct deemed payment" are to be treated as employment income - which means just like a salary. This means PAYE and employees NI is deducted from that deemed salary. Then the fee-payer, which could be the agency or hirer, has to pay their employment taxes on top - these cannot lawfully be deducted from the contractor’s fees.
How can Electus help you as a business or contractor?
Regardless of the timescale for the implementation of IR35 (or off-payroll) reforms to the private sector, it’s clear that significant changes are on the horizon. So, it is vital to prepare now to help you mitigate the impact on you or your business.
If you are unsure about your IR35 status or how IR35 will impact your business, why not give us a call?
We are working with iConsult a service-orientated, Professional Employment Organisation (PEO), commonly referred to as an Umbrella company solution, for contractors, freelancers and temporary workers. They are Professional Passport audited, which means that their service is completely compliant with all the latest regulations and legislation changes.
Working under a PAYE Umbrella offers protection to the contractor supply chain, as the umbrella company becomes the Employer of Record, entirely removing the risk of being caught under IR35.
If you would like to discuss this option with us please feel free to get contact: email@example.com or call 01202 296566