IR35 in Nottingham
What are Contractors?
An independent contractor (also referred to as a freelancer or consultant) is someone self-employed who carries out work for you. Typically, they’ll be contracted in for the specialised knowledge or skills they can provide for a defined period of time to work on a specific project.
What is IR35?
IR35 is the common term for the Intermediaries Legislation which is a tax legislation used to combat a form of tax avoidance whereby individuals are providing services similar to an employee but through a personal service company (their own limited company or partnership).
Some of the criteria used to determine whether someone is ‘inside’ (i.e. caught) or ‘outside’ IR35 is common sense; if you act like and are treated like an employee you should be taxed as one. However, there are a lot of grey areas in the legislation and some points which may seem relatively insignificant can have a major impact. Therefore it’s always best to consult an expert before making any decisions over your IR35 position.
How will your status be determined?
In short, IR35 involves applying three main principles to determine employment status from the Ready Mixed Concrete case. These are known as the principal ‘tests of employment’:
- Control: What degree of control does the client have over what, how, when and where the worker completes the work.
- Substitution: Is personal service by the worker required, or can the worker send a substitute in their place?
- Mutuality of obligation: Mutuality of obligation is a concept where the employer is obliged to offer work, and the worker is obligated to accept it.
Other factors are then taken into account to determine whether you are caught by IR35 including the contract type, whether you are taking a financial risk if you are ‘part and parcel’ of the engager’s organisation, being in business on your own account and provision of equipment.
All of this evidence is taken into account, and if the balance of probabilities is that the worker is an employee then IR35 applies. So, for example, if a worker genuinely has an unfettered right to send a substitute in their place, personal service is not required and IR35 cannot possibly apply. But, relying on that alone can be fraught with danger.
What impact will it have on contractors?
If assessed as inside IR35, contractors will need to pay the same income tax and NICs as if they were employed. However, they still won’t get any employment benefits, like paid holiday or sick leave, from the managing business.
Being assessed as inside IR35 can have a serious financial impact on the contractor and reduce their net income by up to 25%. Even worse, HMRC can go back at least six years and evaluate all contracts within this time to see if the legislation applies. As a result, contractors could end up owing hundreds of thousands of pounds.
As you can understand, many contractors are unhappy about the crack-down in IR35, and it could have a significant impact on the private sector.
Inside IR35 vs outside IR35
Inside IR35 vs outside IR35 comparison
Your IR35 status has different implications for the tax you pay.
When you’re inside IR35 you:
- are classed as an employee for tax purposes
- need to pay income tax and National Insurance Contributions
- pay this tax by making a ‘deemed payment’ at the end of the tax year
Working out your deemed payment can be complex, so it’s best to speak to your accountant to make sure you get it right.
But if you’re a public sector contractor, your fee payer will work out and pay your tax and NICs on your behalf (this applies to those in the private sector from April 2021 too).
Even though HMRC sees you as an employee for tax purposes when you’re inside IR35, you might not be entitled to employee benefits like holiday pay and sick pay.
When you’re outside IR35 you:
- are self-employed and operate as a proper business
- are responsible for your business’s taxes
- can pay yourself in a tax-efficient way
If you’re outside IR35 you’ll be paid your fee and will be responsible for managing your business’s taxes as normal.
How can Seagrave French help you?
How can Seagrave French help you?
There are many factors to consider in deciding if a contractor is caught by the notorious IR35 legislation.
Fundamental factors to consider:
- The right to get a substitute or helper to do the job;
- Mutuality of obligations.
Other factors to consider:
- Provision of equipment;
- Financial Risk;
- Basis of Payment;
- Opportunity to profit from sound management;
- Part and parcel of the organisation;
- Right of dismissal;
- Employee benefits;
- Intention of the parties;
- Length of engagement.
These are often matters of general employment law and not specific tax legislation. There is an enormous amount of Case Law in this area and the Taxman is not always right. They do not have the final say on whether somebody is caught by IR35 or not. We can argue your case for you.
The cost of employees and employers national insurance if you get it wrong are considerable as well as interest and penalties.
We can review your existing arrangements and give you our opinion on whether it will stand up to attack from the Revenue. We can help draft contracts for services to assist you and advise on how you can maximise your chances.
Inside and Outside IR35
IR35 is a tax legislation in the UK that aims to determine whether a contractor is an employee or self-employed for tax purposes. It was introduced in 2000 to stop workers from setting up limited companies to avoid paying tax and National Insurance contributions.
Inside IR35 refers to a situation where the rules determine that a contractor is an employee for tax purposes. This means that the contractor will be subject to the same tax and National Insurance deductions as an employee. In other words, the contractor will have to pay income tax and National Insurance contributions on their earnings. This also means that the company hiring the contractor will need to deduct these taxes from the contractor’s earnings before paying them.
If a contractor falls inside IR35, they may be entitled to certain employment rights, such as paid holiday, sick pay, and other benefits.
Outside IR35 refers to a situation where the rules determine that a contractor is self-employed for tax purposes. This means that the contractor is responsible for paying their own taxes and National Insurance contributions. They will not be entitled to employment rights and benefits and can deduct legitimate business expenses from their earnings before paying tax.
In summary, whether a contractor is inside or outside IR35 depends on various factors, such as the nature of the work, the working arrangement, and the level of control the contractor has over their work. It’s important to note that the rules regarding IR35 are complex, and it’s essential to seek professional advice to ensure that you are complying with the legislation.
We understand that complying with IR35 rules can be a daunting task, and misclassification can result in significant penalties and fines. That’s why we provide tailored solutions to meet your unique needs. With our services, you can focus on your core business without worrying about the administrative burden of IR35 compliance.
Inside IR35 services:
Ensuring compliance with tax legislation: Using inside IR35 services can help ensure that companies and contractors are complying with the tax legislation and avoiding any potential penalties or fines.
Access to employment rights: Contractors who fall inside IR35 are entitled to certain employment rights, such as paid holiday, sick pay, and other benefits. Inside IR35 services can help ensure that these rights are provided.
Risk management: Using inside IR35 services can help manage the risks associated with hiring contractors, such as misclassifying workers and facing legal challenges.
Outside IR35 services:
Flexibility: Contractors who fall outside IR35 are considered self-employed and have greater flexibility over their work arrangements. They can work for multiple clients and set their own hours and rates.
Lower costs: Contractors who fall outside IR35 are responsible for paying their own taxes and National Insurance contributions, which can result in lower costs for the company hiring them.
Specialist expertise: Contractors who fall outside IR35 often have specialist expertise in their field, which can be difficult to find in permanent employees. Using outside IR35 services can provide access to this expertise on a project-by-project basis.
Why choose us?
With our extensive knowledge and expertise of the legislation, we can provide tailored solutions to meet your unique needs. We can help you navigate the complexities of the rules and minimize the risks associated with misclassifying workers. We also ensure that you are complying with the legislation and avoiding costly fines and penalties. With our services, you can focus on your core business without worrying about IR35 compliance.
Our outside IR35 services provide flexibility and access to specialist expertise on a project-by-project basis. Our contractors are self-employed and have greater control over their work arrangements, allowing you to benefit from their unique skills and experience. By using our outside IR35 services, you can save time and money by avoiding the administrative burden of employment status checks and National Insurance contributions. Our services are tailored to your needs, ensuring that you receive the support and guidance you need to succeed.
Our inside IR35 services provide access to employment rights and benefits for contractors who fall inside the rules. We ensure that you are complying with the legislation and providing the necessary employment rights, such as paid holiday, sick pay, and other benefits. We help you manage the risks associated with misclassifying workers and facing legal challenges. Our services are designed to be cost-effective and efficient, saving you time and money in the long run. By using our inside IR35 services, you can ensure that you are providing a fair and compliant working environment for all your contractors.
Whatever your ambitions, we will commit to them wholeheartedly and deliver the premium accountancy services you deserve. Get in touch today to book a chat with our chartered accountants in Nottingham at Seagrave French.