This is a rule which prevents workers from working ‘off-payroll’ or working as ‘disguised employees’. The IR35 rule is very much based on the principle of whether the service you provide is an ’employment’ or a ‘Self-employment‘.
The rule generally affects workers, contractors and Ltd companies who do not meet HMRC’s definition of ‘self-employment’. The contractors who fall under the IR35 rules are essentially treated as employee, therefore pay the same tax and national insurance contribution.
Our IR35 Guide is available for a free download.
Frequently Asked Questions:
Why IR35 matters?
Generally, independent contractors benefit from favourable taxation through avoiding taxes and NI contributions compared to employees. They are also able to claim other expenses (e.g. business travel) which employees may not be able to claim.
What is the impact of being found liable under IR35?
If you are found liable under IR35, the main impact is that you will need to pay more tax. The amount will vary depending on your circumstance but generally is based on difference in taxes and NI, including penalties and interest. HMRC is likely to go back up to six years and demand these payments retrospectively.
What can I do if I am affected by IR35?
Unfortunately, there is not much can be done. If you believe you could be caught by the IR35 rules, you should take an employment contract with your client as soon as possible. You should also speak with your accountant to understand what your tax and NI liabilities are likely to be so that you can provision for the upcoming costs.
Who does not need to worry about IR35?
If you’re a permanent employee of a business, receiving salary and making National Insurance (NI) and tax payments as normal or a temporary employee providing services via an agency then it should not be relevant to you.