What is IR35?
IR35 is a legislation that was introduced in April 2000. The legislation was introduced to ensure contractors did not contract through what HM Revenue and Customs define as ‘disguised employment’.
Please note, IR35 rules are subject to change. If you would like regular updates on this subject, please email: firstname.lastname@example.org
What is ‘disguised employment’?
Permanent employees would resign from their current job and then return a few days later, to the same role, but as a limited company contractor. They would have all the benefits of a permanent employee and would also benefit from the tax saving opportunities that came with being a limited company owner and because of this HMRC introduced IR35 to prevent people working under disguised employment.
As a contractor, your work is temporary which means you don’t have the same rights as permanent employee. For example: sick leave, holiday pay, company pension, healthcare etc. therefore, it is only fair that you benefit from greater tax relief. If caught, the disguised employee would be required to pay full NI and tax to that of a permanent employment. This is classed as ‘Inside IR35′.
How will I know if I am inside or outside or IR35?
When accepting a contract role, you should consider if your contract follows into any of the following clauses. If you answer ‘yes’ to any of the below clauses, we recommend speaking to an expert adviser:
- Substitute – are you always solely required to be on site or at the office?
- Obligation – is the end client always required to provide you work? Once the contract is completed the end client (the company) should not be required to provide any future work. Any extensions etc. would be treated as a new contract.
- Control – are you under direct supervision from the end client or not?
Every contract and sector is unique. For more guidance on IR35 visit our Inside or outside or IR35 page for some useful examples. Alternatively speak to one of our accountants for a FREE verbal IR35 review on 0207 0962659.
What to do if you are inside IR35?
Many people immediately switch to an umbrella solution if their contract is inside IR35, but is that the smartest thing to do? After all, the nature of a contractor’s work is temporary, so who’s to say that your next contract won’t be outside IR35? Working through your own Limited Company is still the most tax efficient way of trading and could still save you more of your hard earned money than contracting through an umbrella company.
Your take home pay could still be higher in a limited company as you’ll have the ability to generate extra income through the Flat Rate VAT Scheme. A few things to consider as a contractor:
- You only pay tax on 95% of your income rather than 100% via an umbrella company.
- Umbrella company fees can often eclipse limited company accountancy fees.
- Limited companies allow you to claim for a wider range of expenses, which can be offset against your overall tax liability.
Our accountants have a wealth of experience in dealing with contractors who are inside IR35, so do not hesitate to contact us if you want to find out more about the tax implications.
To arrange your IR35 review, speak to our expert accountants
- 0207 0962659
- Request a callback
IR35 – Public Vs Private Sector
History timeline on IR35:
2000 – Contractor working in both the public and private sector had sole responsibility on determining whether their contract was inside or outside or IR35.
2017 – Off-payroll working rules (IR35) for public authorities was introduced. This meant that contractors working within the public sector, would automatically be determined as inside IR35. Therefore, the end client/introducer bringing in the contractor will now need to determine their working practices in the following sectors before starting their contract (stated by HMRC):
- government departments and their executive agencies
- many companies owned or controlled by the public sector
- schools and universities
- local authorities
- the National Health Service (NHS)
2018 – In the 2018 Budget it was announced that from April 2020 the off payroll working rules for public authorities would be rolled out to private sector businesses. Quite simply, this means that instead of the contractor or consultant being the decision maker, the recruiter or ‘introducer’ would now need to determine their placements status before starting the contract.
This rule is yet to be finalised by HMRC, so is subject to change. Integro Accounting is keeping on top of all things IR35, so for more information visit our IR35 April 2020 Off Payroll Rule page.
IR35 has had many changes in recent years, however this does not stop the contractor market from growing. In March 2019 companies house released the latest results in new company formations. Currently the market stands at having over 4 million companies incorporated, with year on year growth. Despite seasonal changes, new company incorporation’s have continued to increase since 2012.
Why choose Integro Accounting?
Integro Accounting provide a fixed fee limited company accountancy service to contractors, freelancers and consultants. Integro accounting was founded on the word integrity. Clients rate us 5/5 on Google and we pride ourselves on building a completely transparent and personal relationship with our clients. For just £100 + VAT per month, you can have a partner integral to your contracting career.
- All-inclusive price – no hidden charges, one comprehensive package.
- A dedicated accountant – one person who will support you every step of the way.
- Unlimited face to face meetings – offices available across the UK.
- FREE award-winning accountancy software – a FreeAgent license provided to all clients.
- 24/7 access to your accounts – complete visibility of your accounts whenever and wherever you are.
Speak to one of our expert accountants today on 0207 0962659 or email email@example.com for more information on how we can help you.