IR35 is a set of rules that determine whether a contractor working through their own limited company should be treated as an employee for tax purposes. If the contractor is deemed to be an employee under IR35, the client will be responsible for paying employer’s National Insurance contributions (NICs) and deducting income tax from the contractor’s payments.
The off-payroll working rules are a set of rules that were introduced in April 2021 to make it easier for HMRC to enforce IR35. Under the off-payroll working rules, medium and large-sized businesses in the public sector and private sector are responsible for determining the employment status of their contractors and paying the appropriate taxes and NICs if the contractor is deemed to be an employee under IR35.
How do I know if IR35 applies to me?
If you are a contractor working through your own limited company, you need to consider whether or not IR35 applies to you. There are a number of factors that HMRC will take into account when determining whether or not IR35 applies, including:
- The control that the client has over you.
- The integration of your services into the client’s business.
- Whether or not you are able to substitute yourself for another contractor.
- Whether or not you have your own business equipment and premises.
- If you are unsure whether or not IR35 applies to you, you should seek professional advice from an accountant or tax specialist.
What are the implications of IR35?
If you are deemed to be an employee under IR35, your client will be responsible for paying employer’s NICs and deducting income tax from your payments. This means that you will pay more tax and NICs than if you were self-employed.
In addition, you may not be entitled to the same rights and benefits as employees, such as paid holiday and sick leave.
How can I mitigate the risks of IR35?
There are a number of things that you can do to mitigate the risks of IR35, including:
- Carry out a thorough IR35 assessment for each contractor. This will help you to determine whether or not the rules apply.
- Use a contract that is specifically designed for IR35 purposes. This will help to protect you from any potential liabilities.
- Take out IR35 insurance. This will cover you in the event that HMRC decides that the rules apply to a contractor and you are required to pay additional taxes and NICs.
IR35 and off-payroll working are complex and controversial issues. Businesses and contractors need to carefully consider the risks involved before engaging in this type of working arrangement.
If you are unsure whether or not IR35 applies to you, you should seek professional advice from an accountant or tax specialist.