What is IR35?
This blog explains explains the difference between being self employed and IR35. IR35 is one of those terms that many contractors have heard of, but few fully understand. Unfortunately, not understanding IR35 can be costly as getting it wrong can lead to unexpected tax bills, penalties and stress. Let us explain IR35 in simple terms, what it means for contractors and what you should be thinking about before accepting a contract. Before IR35, some workers were doing the same job as permanent employees by working regular hours under close supervision, using company equipment but paying less lax by invoicing through a limited company. IR35 is a UK tax legislation designed to stop “disguised employment” and to ensure people who work like employees are taxed like them too. So what’s the difference? Outside IR35, you are considered self-employed, which usually means:• You have control over how and when the work is done
• You can send a substitute to do the work
• You can work for multiple clients
• You take on the financial risk
• You may yourself through dividends and salary in the usual way
Inside IR35, you are considered a “deemed employee” for tax purposes which usually means:
• You work under the client’s direction
• You have set hours and responsibilities
• You cannot send a substitute
• You are treated like part of the internal team
• You pay income and National Insurance similar to permanent employees but without the benefits like holiday or sick pay.
HMRC wont focus on one single issue, they will look at the overall working arrangement. If they decide you are working like an employee, they may require you to pay the same tax and National Insurance as an employee – even if you operate through a limited company. If you are unsure about a contract or want advice before moving roles, call one of our team today on 01722 448 448