In March 1999 Inland Revenue (HMRC) released a guidance note, number IR35.
This was detailing the governments plans for ‘counter avoidance in the area of personal service provision’. This reflected the governments concerns that individuals were performing work in the manner of a traditional employee, but setting up limited companies in order to pay less income tax and national insurance.
In July 2000 IR35 became law, via the finance act. These rules were designed to prevent individuals who would ordinarily be viewed as ’employed’ by HMRC from being taxed as if they were ‘self-employed’.
2017 – The Government released legislation to clamp down on tax avoidance by so-called ‘off-payroll’ workers in the public sector, making it the responsibility of the end employer to determine and assess if the individual was subject to the legislation.
2019 – draft legislation was released to roll this public sector provision to the private sector.
2020 – Private sector IR35 is anticipated to go live from 6th April 2020.
What is IR35?
IR35 or off payroll working rules apply if a worker (sometimes known as a contractor) provides their services through an intermediary.
According to HMRC guidance an intermediary will usually be the worker’s own personal service company, but could also be any of the following:
- a partnership
- a managed service company
- an individual
The rules make sure that workers, who would have been an employee if they were providing their services directly to the client, pay broadly the same tax and National Insurance contributions as employees.
The rules apply if you are:
- a worker who provides their services through their intermediary
- a client who receives services from a worker through their intermediary
- an agency providing workers’ services through their intermediary If the rules apply, tax and National Insurance contributions must be deducted from fees and paid to HMRC.
Under new legislation, as of 6th April 2020, your end client (not you) will be responsible for determining your tax status.
The end client must make sure that they inform the worker of the IR35 determination of their assignment.
This is done in the form of a status determination decision and the client should give you the reasons for this decision.
Inside or outside?
If you are determined to be ‘inside IR35’ it means that you are considered, for tax purposes, an employee of your end client and therefore subject to PAYE. If you are operating ‘inside IR35’, you need to ensure you are paying the appropriate taxes.
If the end client deems you to be ‘inside IR35’ there are a number of options available:
Mydas can provide a PAYE service. Under this you are a temporary PAYE paid worker engaged in a contract for services.
As a temporary PAYE paid worker you will be entitled to at least 28 days paid leave, entry into a pension scheme (optional), statutory sick pay after the qualifying period & Mydas will make the statutory deductions.
Mydas can provide this option at no additional cost to you.
Once you close your limited company and convert to a PAYE model you no longer need to pay for accountancy fee’s or insurances which may have been required (public liability or employers liability insurance)
There is no ability to benefit from tax efficient measures e.g. travel & accommodation allowances, salary sacrifice pension schemes etc.
This is similar to that of PAYE (above), you would be employed under a contract of employment from the umbrella provider.
The umbrella will make the statutory deductions, benefits & manage pension contributions. This also entitles you to carry out one or multiple assignments under the same contract. Generally there is an associated fee for this service.
If you choose to use an umbrella, we have a preferred suppliers list. Please contact us for more information.
Umbrella companies can provide a salary sacrifice pension scheme, health insurance etc
There is a fee for this service
You are entitled to challenge the end client on their decision.
If so, they will need to:
- consider the reasons for disagreeing given by the worker or agency paying their intermediary
- decide whether to maintain the determination if they feel it is correct and give reasons why – or provide a new the determination.
- keep a record of the determinations and the reasons for them.
A response must be given within 45 days.
Alternatively you can contact firstname.lastname@example.org