dua@dua.co.uk 020 8421 3555

Tackling IR35: Does it Affect You?

5 Jun

Tackling IR35: Does it Affect You?

Recent changes to the way that contractors are paid has added an extra layer of complication to the already confusing world of IR35 tax legislation.

Here, Dua & Co outlines everything that contractors and consultants need to know about what IR35 entails.

What is IR35?

IR35 is the name given to tax legislation introduced in 1999, that is aimed at individuals referred to by HMRC as ‘disguised employees’. A ‘disguised employee’ is a worker who is supplying their services to a client via an intermediary, such as a limited company, but who would be an employee of the client if the intermediary was removed.

Under IR35, an HMRC inspector can disregard any contract between the worker and the client, and replace it with a ‘notional contract’ based on what they perceive to be the actual nature of the working relationship. The individual will be required to pay  income tax and National Insurance contributions on their earnings as if they were employed.

The purpose of IR35 is therefore to ensure that individuals pay what HMRC cite as ‘broadly tax and NICs on a basis which is fair in relation to what an employee of the client would pay.’

What has changed?

Although the legislation has been in place since 1999, recent major changes in the

way that contractors and consultants are paid have had significant consequences in the public sector. From 6th April 2017, public sector bodies are now responsible for determining whether a freelancer or contractor falls under IR35.

In cases where the new rules apply, the public-sector body employing the services of a personal service company or ‘one man band’ limited company, is considered to be the employer and required to deduct PAYE from the earnings.  

To avoid running into difficulties with HMRC, public sector organisations have treated the majority of their contractors as employees without assessing their individual circumstances. This has had negative repercussions for the contractors– PAYE is being deducted from their invoices as if they were employees, but without the same level of employment rights.  

For companies in the private sector, however, determining IR35 status remains as the liability of the contractor. Some observers expect this to change, however, with private sector companies also being expected to take responsibility for the IR35 status of their contractors. Should these changes come into effect, a large section of the UK’s skilled workforce could be affected.

How to prepare yourself

The impact of IR35 on your tax position can be significant. It is therefore crucial that contractors and consultants determine their tax status to avoid any adverse circumstances. You are currently able to carry out your own evaluation using HMRC’s online tool.

However, determining your position with regards to IR35 is a task that, ideally, should be undertaken with the help and direction of an expert. The tests used to determine whether IR35 applies to a working relationship are extremely complex, often requiring a considerable amount of knowledge and experience in the field of tax legislation – and that’s where Dua & Co can help. Whether you are a consultant or a contractor looking to clarify your position, our team of business advisors and chartered accountants in Watford can guide you through the complexities of compliance. Arrange a no obligation consultation with us today to find out how we can help you with IR35.

Related Blogs

Dua & Co’s Guide to Your Property Investment Options

When it comes to investing in property, many people aren’t

read more

Updates on Making Tax Digital

This year, HMRC began the introduction

read more

How Dua & Co. Improve Your Business Processes

Making sure that your business processes

read more

Improving the Performance of Your Care Home Business

We’ve discussed before here at Dua & Co the many ways

read more

Follow us on: 

CONTACT US

Dua & Co (Watford)

1st Floor, 5 Century Court, Tolpits Lane, Watford, WD18 9PX

+44 (0)20 8421 3555

Dua & Co (City)

9 Devonshire Square London, EC2M 4YF

+44 (0)20 3356 9706

get in touch

yesBy checking this box, you agree to receive Dua & Co updates and offers via email. All subscribers must be over the age of 16. Recurring automated marketing messages will be sent to the email address provided. You can unsubscribe at any time.View Terms of Use and Privacy Policy.

All material on this site is used by permission. We may use cookies on this site. See our cookie policy here Registered to carry on audit work in the UK and Ireland; regulated for a range of investment business activities; and licensed to carry out the reserved legal activity of non-contentious probate in England and Wales by the Institute of Chartered Accountants in England and Wales.

Read the Dua & Co Blog here

Provision of services regulations disclosure here

© Dua & Co 2018

Dua & Co. Limited trading as Dua & Co Chartered Accountants.

Dua & Co Limited is registered in England & Wales.

DIVERSITY AND INCLUSIVENESS

As a business, we have been clear in our commitment to Diversity and Inclusiveness. An important part of this is understanding the 'mix' of our people and measuring progress towards the goals that we have set ourselves. We can share our approach to employee monitoring, together with some statistics showing the make-up of our business. To obtain these please email us at dua@dua.co.uk