Due to the Covid-19 pandemic, the UK Government has delayed the country’s IR35 reform, to the relief of many contractors. The recent announcement was made as part of the government’s £350bn financial aid to the UK economy, which includes business rate holiday, emergency loans for companies and financial assistance for the self-employed.
However, the fallout from business decisions earlier this year has already caused some damage to the contractor workers, many of whom have lost their agreements with large banking corporations and other FTSE entities. Why? Mainly because corporations do not want to be liable for a tax bill, should their contract workers be found within IR35.
So, let’s take another look at IR35:
Client is also known as the hiring organisation or engager, hirer or end client
Contractor worker who IR35 can apply to are those who:
- Work through a limited company to the end client
- Work through a personal service company (PSC)
- Work through a partnership
- Works as an individual (self-employed)
What is IR35?
‘Intermediaries Legislation’, otherwise known as ‘off-payroll working’.
It is a tax legislation that was introduced by the UK authorities back in 2000. It means that contract workers who work through their own Limited company or another type of intermediary to the client (i.e. Partnership, personal service company and an individual) can no longer set their tax status, instead it will be set by the business which they are contracted out to.
It is the responsibility of both the client and the contract worker to determine whether the off-payroll working rules apply.
Why was IR35 Introduced?
To crack down on ‘disguised employment’, in other words, contractors who behave as employees, and receive the same benefits of PAYE workers, but do not pay regular income tax and NI contributions.
The IR35 legislation will ensure people working like employees but through their own limited company, pay broadly the same tax as those employed directly.
What does ‘inside IR35’ mean?
It means that the contractor worker is acting to the equivalent to that of a permanent member of staff.
If you are found within IR35, it means that you will have to pay more tax, even though you do not receive benefits that full-time (PAYE) employees receive (e.g. holiday pay, sick pay, pension, parental leave).
Who is affected by IR35?
- 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
How do I know if I am inside IR35 or not?
Well, it’s not totally straightforward, so we have written a separate article to help you. Click here
If I am inside IR35, running my own limited company, how do I work out tax owed?
There are various calculators online to help you with this. We are not qualified accountants, so we suggest you speak to an accountant.
You can also find further information here:
Further information here: