If you are self-employed then you are probably already aware of IR35, the off-payroll working rules. This is the legislation that makes sure that workers who, if it wasn’t for an intermediary company, would be classed as an employee and pay the same Income Tax and National Insurance as equivalent employees.
If you are unsure, use this HMRC calculator to see whether IR35 applies to you: https://www.tax.service.gov.uk/check-employment-status-for-tax/disclaimer
Currently, contractors working for private sector clients are responsible for deciding if IR35 applies but from April 2020 this is changing. As in the public sector, the responsibility of making the decision will transfer from the contractor to private sector clients.
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These new rules apply to all public sector clients and private sector companies that meet at least 2 of the following conditions:
It is important to keep in mind that each contract will be viewed separately with one client you may fall within IR35 but with another you may not.
If your client decides you are within IR35 you will be liable to pay Income Tax and National Insurance. This will be considerably higher than the Corporation Tax on dividends paid through your Ltd company. The additional expense, along with the added complexity may be particularly harmful to small businesses. There is also the issue of being taxed as an employee but not necessarily gaining any of the employment rights and employee would have, such as sick pay, holiday pay or company pensions.
Despite criticism there are several benefits that have been discussed, including ensuring workers performing the same tasks pay the same tax and national insurance whether they are employed or self-employed. It also aims reduce the number of employees who leave employment to then return to the same job as a contracted consultant in order to avoid paying the correct Income Tax and National Insurance.
In January 2020 the Government launched a review of changes to IR35 . They will gather evidence from affected individuals and businesses to determine if any further steps can be taken in order to ensure successful and smooth implementation of the new rules. The review will also assess the need for additional support for the self-employed who are not within the scope of IR35 and there for not impacted.
If you have any questions or need help on IR35, give our bookkeeping team a call.
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