If you’re a contractor, it’s imperative that you’re up to date with the latest IR35 regulations to ensure you’re not caught out. The new rules come into effect as of April 2021, and we’ve got all the information you need to get you clued in and on top of your finances.
The IR35 explained
Also referred to as off-payroll working rules, the IR35 is a way for HMRC to assess whether a contractor is genuine or is actually ‘disguised’ as an employee for the purpose of paying tax.
The latest IR35 regulations are being brought into play as often, contractors take advantage by pretending to be self-employed and benefit from paying less tax whilst enjoying the benefits of being an employee. Additionally, many companies exploit the system by claiming contractors as self-employed, this way they don’t have to pay employer’s National Insurance contributions or provide any employee benefits.
In short, the IR35 tax regulations aim to reduce the amount of ‘disguised employees’ and prevent either parties unfairly exploiting the tax system, whilst also guarding against HMRC losing tax yield.
Who do the new IR35 regulations apply to?
According to HMRC, the latest IR35 tax rules apply to the following:
- Workers providing services through an intermediary
- Clients receiving services from a worker through an intermediary
- Agencies providing workers services through an intermediary
HMRC have also stated that if you’re contracting for a public sector authority, medium or large private sector business, they’ll be responsible for determining your IR35 status. Alternatively, if you’re contracting for a small client with an annual turnover of less than £10.2 million, a balance sheet of no more than £5.1 million and no more than 50 employees, your intermediary will be responsible for determining if the rules apply.
It’s important to note that IR35 doesn’t impact sole traders as this means that you’re self-employed, without a limited company. The IR35 regulations are only for contractors working for limited companies.
What are the IR35 regulations?
If you’re determined to be ‘inside the IR35’, you’ll have to pay the same National Insurance and Income Tax as an employee, be enrolled on PAYE and you’ll likely be entitled to additional rights such as minimum wage, maternity pay, sick pay, holiday allowance, etc. If you’re classed as ‘outside the IR35’ you’re responsible for managing your own taxes, drawing your own salary and paying yourself in the most tax efficient way.
What happens if I’m found to be a disguised employee?
If HMRC suspects you’re operating as a disguised employee, an investigator will be hired to look into the case, where they’ll examine the nature of employer/contractor relationship. If you’re then found to be abusing the tax system, you’ll be required to pay back the missing sum of tax, plus any interest and penalties that arise. This applies even if you haven’t benefitted from any of the support or benefits that employees usually receive or are entitled to.
How Accountancy Solutions can help
If you’re confused about the latest IR35 regulations, don’t hesitate to get in touch! Our experts and personal accountants know all the ins and outs and are happy to advise you. Simply get in touch today by calling: 01633 288299 or emailing us at: rebate@sixtyfour8.co.uk.
That’s the IR35 explained! Want to cut the jargon and find out more about the world of tax? Check out our guide to VAT tax returns, next.
