IR35 – the basics all employers and contractors need to know

IR35 – the basics all employers and contractors need to know

What is IR35?

  • Anti-avoidance legislation
  • Used to ensure an individual’s earnings are taxed correctly
  • Individuals may prefer/or be asked to work through an intermediary (eg their own PSC – personal services company) rather than take on a role of employment
  • The off-payroll working rules (aka ‘IR35’ rules) ensure HMRC receives the same amount of tax whether the individual is working through their own intermediary or directly on the payroll

Why does it matter?

  • Many individuals may perceive there to be operational benefits from working through their own company.
  • There are tax advantages for the individual when running through their own company
  • HMRC perceives there is a loss of tax and NI revenue as a result of this.

From April 2020…

  • The ‘client’ (being: the end user of the services) will need to determine whether the arrangement is ‘within IR35’ (currently the PSC does).

The Small Exemption

Client companies that engage off-payroll workers are in scope of the reform if they do not qualify as ‘small’ under the Companies Act 2006. To qualify as small a company must meet two of the following conditions:

  • Annual turnover not more than £10.2 million
  • Balance sheet total not more than £5.1 million
  • Number of employees not more than 50

HMRC – How to Prepare

  1. Look at your current workforce (including those engaged through agencies and other intermediaries) to identify those who are supplying their services through PSCs.
  2. Determine if the off-payroll rules apply for any contracts that will extend beyond April 2020. You can use HMRC’s Check Employment Status for Tax service to do this.
  3. Start talking to your contractors about whether the off-payroll rules apply to their role
  4. Put processes in place determine if the off-payroll rules apply to future engagements. These might include those people in your organisation should make a determination about how payments will be made to contractors within the off-payroll rules

For a full list of FAQs relating to IR35 please read here.

For more information contact info@sadleradvisory.com