Sage-Tips

What does IR35 mean?

The rules make sure that workers, who would have been an employee if they were providing their services directly to the client, pay broadly the same Income Tax and National Insurance contributions as employees. These rules are sometimes known as ‘IR35’. They may also be known as the engager, hirer or end client.

What is the IR35 rule?

IR35 is shorthand for the UK tax legislation that is designed to identify contractors and businesses which are avoiding paying the appropriate tax by working as ‘disguised’ employees, or are engaging workers on a self-employed basis to ‘disguise’ their true employment status.

Why is IR35 bad?

IR35 is usually a threat to your income only if you are self-employed, and provide your services via a limited company. HMRC may decide that you should, in fact, be paying tax and NI contributions as if you were an employee.

Who will IR35 apply to?

If you’re operating via a limited company and providing services, then it’s very likely that you’ll need to consider IR35. Technically, it applies to anyone working via an ‘intermediary’ – for example, via a limited company (sometimes called personal service companies, or PSCs) or a partnership.

What is my IR35 status?

Your IR35 status (which can vary from contract to contract) determines your tax position with HMRC. It’s important to understand the definition and your personal risk of being defined as a ‘disguised employee’ of your client for each contract you undertake.

What determines IR35 status?

In determining whether a person’s contract work will be caught by IR35 or not, a number of key ‘factors’ are used to establish employment status, including elements such as the right to substitution, control, mutuality of obligation, and other factors which may or may not indicate ‘self employed’ rather than ’employed’ …

Who is exempt from IR35?

There’s an IR35 small business exemption for end-clients: a “small business” is defined by the Companies Act 2006 as any business that meets two or more of the following criteria: Annual turnover is no more than £10.2 million. Balance sheet total is no more than £5.1 million. No more than 50 employees.

How do you stay outside of IR35?

Special Commissioners Advice To Stay Outside IR35

1. Vary your contract hours.
2. State the services you will provide in your contract.
3. Don’t have a fixed end date in your contract.
4. State the work you will do in your contract renewal.
5. Have a Substitution Clause in your contract.
6. Set up a company website.
7. Set up an office.

What happens if you fall within IR35?

Being inside IR35 means your contract falls in the off-payroll working rules and HMRC sees you as an employee for tax purposes. Being outside IR35 means your contract points towards self-employment, so you can operate tax efficiently.

How do I know if I am outside IR35?

To be outside IR35, your contract must reflect you and your client’s actual working practices, so you aren’t caught out by HMRC. If you offer services, rather than a contract for a service, then you’re likely to fall outside of IR35 as you could send someone to do the work in your place, for example.

How do I know if IR35 applies?

IR35 will only apply if the individual is working for a client under circumstances that if it were not for the imposition of the Limited company or Partnership (known as the “intermediary”) would be one of employment. Anyone working via an intermediary will be caught by new rules if they fail the ‘IR35 test’.

Does IR35 apply self employed?

Does IR35 apply to sole traders? IR35 does not apply to sole traders, because you are operating as a self-employed person without a limited company. IR35 will affect you as a contractor that works for a limited company.

What is IR35 and who does it affect?

Being a part of tax legislation, IR35 is an anti-tax avoidance rule called to distinguish a genuine business from the so-called ‘disguised employee.’ It is applied to all contractors and freelancers who do not fall under HM Revenue and Customs (HMRC) definition of being self-employed.

What does the IR35 legislation mean?

IR35 is the common term for the ‘Intermediaries legislation’ introduced by HMRC in 2000. This legislation aims to eliminate the avoidance of tax and National Insurance Contributions (NICs) by contractors and service providers through the use of intermediaries, such as limited companies.

Does IR35 apply to you?

As IR35 is intermediaries legislation, which attempts to deem the directors of companies as employees depending on their respective working practices. If you provide your services as an employee, IR35 cannot apply to you as there is no intermediary. You would be an employee already and would be paying the appropriate tax.

What is an IR35 deemed payment?

The IR35 deemed payment is calculated at the end of the tax year. Throughout the year, you will pay tax and national insurance on any salary you pay yourself as normal. You will need to decide which contracts IR35 applied to throughout the year by evaluating the written terms of the contract and your working practices during its term.