So IR35…It’s been in the news and if you are a contractor then you have most likely heard about it if not affected by it.

The bottom line is the government wants your money: to be more precise, they want the money you owe in contributions and tax that a fair amount of people avoid paying.  There are various schemes and workarounds set-up by companies that have helped people avoid paying these, and now the government want this to stop.  These schemes use loopholes to help the person avoid paying the correct contributions that are usually calculated on the amount you earn, not what you pay yourself or based on how you are paid.

IR35 is also known as ‘intermediary’s legislation’.  It is a set of rules that govern the tax and National Insurance contributions that you pay. Should you be contracted to work for a customer through an intermediary you will be impacted by IR35.

Under IR35 intermediary means:

  • Your own limited company
  • A service including a personal service company
  • A partnership

When IR35 applies to your situation then the intermediary must operate PAYE and National Insurance contributions on ANY salary or income that it pays to you during the tax year.

The rules are designed to make certain that the right rate of tax and National Insurance is paid for and by you.

Contractors impacted by IR35 lose the tax advantages associated with working via a limited company, and it is for that reason that numerous contractors opt to work through an umbrella company instead.

What will happen if I do not follow the IR35 tax guidelines?

The intermediary is always accountable for complying with IR35 legislation when it is applicable. If you’re the person in charge of your limited company or a member of a partnership, you need to make sure all relevant legal guidelines are followed, and take responsibility for deciding whether it applies for your engagements or not.

There can be substantial outcomes if you, your intermediary, or client ignore the IR35 legislation. Accrued Interest and fines can be charged on any extra tax and National Insurance contributions that are owed. Penalties can be more severe in the case that it can be proved that IR35 rules or legal guidelines have been deliberately disregarded.

Who is impacted| by IR35?

Likely, anyone that operates using an intermediary. Health workers, Teachers, IT professionals, Clerical Staff and more can all be affected by the new legal guidelines.

In simple terms if you perform a service under the same conditions as if you were employed by the client you could be captured by IR35. Under the new rules you would most likely be considered a ‘disguised employee’.

What are my options as a Contractor?

  • Contract in the Private Sector
    If available to you then this is an option, but please be aware that the private sector has seen a huge increase of NHS locums since the IR35 legislation made it’s presence felt .
  • Prove you are actually ‘self employed’
    This seems to be the most popular option, it keeps you compliant and up to date with the IR35 guidelines within the public sector but nevertheless still offers many of the advantages of being your own intermediary.
  • Run away to another country?
    An option however this is extreme to say the least when there are other solutions available.
  • Do Nothing at all
    This is the easy ‘bury your head in the sand’ option and the one some may take BUT we urge anyone impacted by IR35 and talk to a specialist at the earliest opportunity to avoid being caught out.

So let’s recap:

If you work for an organisation on an on-going basis you will be regarded as a staff member of that company, even if you are on a flexible or adaptable or even fixed term agreement. This will also apply if you are contracted by an agency or company to work for other companies. In essence it means that you are now accountable for the same taxes and contributions as people employed in full time positions.

If you are still unsure if you come under IR35 you are able to use a handy tool that was setup by the HMRC that can be used to ascertain employment status for contractors in the public or private sector. Typically the HMRC states that it will stand by the result of any test, “unless a compliance check finds the information provided isn’t accurate. ”