No matter what industry you’re in, if you are a contractor or freelancer working under a limited company, this legislation is something that could affect you. In order to avoid fines, it is important that you understand IR35 and what action you need to take to protect your income and your autonomy.
IR35, also known as disguised employment or off-payroll working rules is legislation that was introduced in the Finance Act of 2000 by the government.
The name itself was coined from the press release reference (Inland Revenue 35) issued by the Inland Revenue before it became known as Her Majesty’s Revenue & Customs (HMRC).
The Intermediaries Legislation was created to ensure that workers and employers pay the right amount of employment taxes, with the intention of eliminating any differences between employed workers and self-employed individuals carrying out similar work. It typically affects contractors’ providing services through an intermediary such as a Personal Service Company (PSC).
There are situations where contractors and freelancers are working under a limited company but are receiving benefits or being in some way treated as an employee. There may be minor ways in which you’re being treated as an employee without even realising, such as being given managerial responsibilities, having to run your work decisions by someone in the company or being paid a regular monthly wage.
An employed worker pays more income tax and National Insurance than a self-employed contractor does when working through an intermediary. The taxes of an employed worker are paid by the employer, before they receive their wage, at 13.8% – Employers National Insurance (NI) – for each employee plus tax. If you are self-employed you have the responsibility to pay this yourself.
Using a tax efficient combination of salary and dividends, self-employed workers are able to build up a profit from their limited company. This is often done by the contractor paying themselves a minimum wage salary followed by paying themselves a dividend at the end of their tax year from their limited company’s profits.
IR35 aims to improve equality, so that those contractors who are being treated as employees pay the same amount of tax as employees.
Check whether you are inside or outside of IR35
One way of checking your IR35 status is via the HMRC Check of Employment Status Tool (CEST).
Some other points to consider:-
What degree of control, supervision or direction do you have?
Do you have control over your working day?
Are you required to carry out the work yourself?
Are you able to send a substitute?
Is your client obliged to provide you work and are you obliged to complete it?
So what happens next?
Your client will inform you that you either fall inside or outside of IR35.
If you fall inside of IR35 there will be two options. Your client will either offer you a contract where they will take you on as an employee, or they will tell you that you must be paid through an Umbrella Company.
IMPALA SOLUTIONS LIMITED
Impala Solutions Limited has been set up with you in mind. While you are still contracting, Impala Solutions Limited will provide you with full-time employment rights such as holiday pay, maternity pay, sickness pay, pensions and so on. We will also provide HR functions and the usual employment benefits.
While you are still contracting, you will be an employee of the Impala Solutions Limited. Impala Solutions Limited will be paid by the client that you are working for. We will then pay you and deduct any taxes and national insurance and pay these amounts over to HMRC. You will also be provided with an itemised wage slip each pay period.
If you feel that IR35 will affect you then please do not hesitate to give me a call to discuss or send an email to firstname.lastname@example.org.
Our solution is your solution.