IR35 is also known as ‘intermediary’s legislation’. It’s a set of rules that affect your tax and National Insurance contributions. If you’re contracted to work for a client through an intermediary you will be affected.
The intermediary can be:
If IR35 applies in your situation then the intermediary must operate PAYE and National Insurance contributions on any salary or wages it pays to you during the tax year.
The rules are designed to make sure that the right rate of tax and National Insurance is paid for you.
In short: Contractors affected by IR35 lose the tax benefits of working via limited companies, and it is for that reason that many contractors opt to work through umbrella companies instead.
IR35 in the private sector has been pushed back until April 2021 due to the COVID 19 situation. Once the legislation is implemented, most sectors will be affected by the change and will need to change how contractors are paid.
Likely, anyone who operates using an intermediary. Clerical Workers, Teachers, IT professionals and more can all be affected by the legislation.
In basic terms if you perform a service under the same terms as if you were employed by the client you could be caught by IR35. Under the new rules you could possibly be considered a ‘disguised employee’.
The intermediary is always responsible for complying with IR35 legislation when it applies. If you’re a director of your limited company or a member of your partnership, you must make sure all relevant legislation is followed, and take responsibility for deciding if it applies for each of your engagements or not.
There can be significant consequences if you, your intermediary, or client ignore IR35 legislation. Interest and penalties can be charged on any extra tax and National Insurance contributions that are owed. Penalties can be more severe if it can be proved that IR35 rules or legislation have been deliberately ignored.
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If you work for a company on a regular basis you are legally regarded as an employee of said company even if you are on a flexible or fixed term contract. This also applies if you are contracted by an agency to work for other companies. The bottom line is that you are now responsible to pay the same tax and contributions as people employed in full time positions.
If you are still unsure if you come under IR35 you can use this tool setup by the HMRC which can be used to determine employment status for contractors in the public or private sector. The HMRC states that it will stand by the result of any test, “unless a compliance check finds the information provided isn’t accurate.”