The world of tax is ever-changing, and some of those changes have more of an impact than others. One of these reforms is IR35.
Although IR35 rules have been around for a while, they were rolled out to the private sector in April 2021. The effect IR35 has had on the way contractors work has been rather significant.
If you aren’t completely sure what IR35 means or how it affects the way you work, this post will explain it all.
What is IR35?
IR35 is a set of tax laws designed to stop tax avoidance by workers who supply their services through an intermediary (and the firms that hire them).
With these rules, off-payroll workers should pay the same amount of income tax and National Insurance as employees.
If a self-employed worker is classed as a ‘deemed employee’, it means an organisation engages a worker on a self-employed basis through an intermediary (like a limited company) rather than on a contract.
By doing this, the hiring body can save money as they don’t have to pay employers’ NICs of 13.8% or the apprenticeship levy. They also don’t have to offer any employment rights or benefits.
IR35’s aim is to turn a one person small business into an employee, making sure the worker pays the right amount of tax and has the correct workers’ rights.
Now, there are two distinct areas of IR35, being inside or outside. Here’s what both of them mean.
Being inside IR35 means you’re considered an employee of your end client for tax purposes, and are subject to PAYE. To operate legally inside IR35, you’ll have to pay the appropriate taxes.
When you’re paid through PAYE, you’ll have your tax and NICs deducted automatically from your employer and they’ll match the NI paid to the Government.
If any of your taxes aren’t paid correctly, you’ll both be liable for any fines and investigations by HMRC.
Workers in the private sector, as per off-payroll rules, will have their employer decide whether they are deemed as being inside IR35. If they don’t provide the right information to HMRC, they are responsible for paying any money owed.
If you’re unsure about your IR35 status, the best course of action is speaking to an accounting team. The team at Blue Shore is happy to answer any questions you may have.
By being outside of IR35 rules, you are seen to be working as a genuine self-employed business. You will be able to pay yourself a salary and draw the remainder of your income as dividends, just like a director of a company.
This means you will be solely responsible for your taxes as usual.
If your client deems you as outside IR35, you will be paid as normal but will have to include all of your deductions in a self-assessment tax return.
There is always the chance you may be subject to an IR35 enquiry from HMRC. This may happen if you aren’t well-versed in the rules and regulations.
But don’t worry, with accountants like the team at Blue Shore by your side you won’t have anything to worry about.
We’ve got this
Whatever your working status, Blue Shore is here to help you with any HMRC concerns you may have.
We’ll make sure you’re paying the right amount of tax, while navigating the tricky world of IR35.