What is IR35?

By Australasian Recruitment Company – April 16, 2021

What is IR35?

What is IR35?

You may have heard of the term IR35 around the workplace or in the media in recent times, especially as the legislation came into effect for private companies with the start of the new tax year on the 6th of April – but what is IR35 and does it affect you? As a leading recruitment agency in London, we have summarised the key points.

What is IR35?

IR35 is the shortened name that has been given to the Off-Payroll Working Rules. It is tax legislation that has been introduced by HMRC to the public services in 2017 and now private companies this year to address tax avoidance in relation to workers paid through intermediaries.

Does it affect me?

Contractors can be paid as though self-employed through an intermediary (such as their own limited company) and, although they don’t receive the benefits of permanent workers such as annual and sick leave, they do receive a more advantageous rate of tax. In this case, the employer also avoids paying National Insurance and Apprenticeship Levy contributions to HMRC and employee benefits to the contractor.

When a genuine self-employed contractor, freelancer or consultant uses this method to contract out their services this is not a problem, however, many companies have been hiring workers to be paid as if they are self-employed even though in every other sense they are identical to a permanent employee.

How does HMRC decide?

IR35 aims to correct this “disguised employment” through testing the status of the employment contract. HMRC can judge you to be an employee if you would be an employee if there was no intermediary and so you would need to pay income tax and National Insurance contributions (also known as “Inside IR35”). Alternatively, they can judge you to be genuinely self-employed (also known as “Outside IR35”).

There are three main principles that differentiate a self-employed person and an employee:

Supervision, direction, control – How much control does your employer have over your mode, timing and method of work?

Substitution – can someone else complete your work, or do you need to complete it yourself?

Mutuality of obligation – is there an obligation for the employer to offer you work, and do you need to accept it?

Is there any action I need to take?

If you are currently paid through an intermediary, it is up to your employer to work out your employment status and provide the reasons behind their decision in a Status Determination Statement. If you disagree with the outcome, you can dispute the decision.

You may be placed on a PAYE contract to contribute income tax and national insurance, or be hired through an umbrella company if you are deemed to be an employee.

HMRC also has created a tool called CEST (check employment status for tax) you can use to check whether IR35 applies to you, and also an IR35 helpline (0300 123 2326).

Resources

https://www.gov.uk/topic/business-tax/ir35

https://www.gov.uk/guidance/check-employment-status-for-tax

https://www.gov.uk/government/organisations/hm-revenue-customs/contact/ir35-enquiries

 

If you are a candidate looking for your next temporary or permanent business support role in London, or a client requiring assistance in recruitment please contact our team so we can help you with your search at hello@australasian.co.uk

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