From 6th April 2020, most private sector companies that engage limited company contractors, whether directly or via an agency, became legally responsible for determining the tax status (known as ‘IR35’) of those assignments.
IR35 refers to HMRC’s ‘test’ for self-employment for tax purposes, only when contractors supply services using a limited company set-up, normally referred to as a personal service company or PSC. Working through a PSC does not, in itself, mean that a contractor is self-employed.
The IR35 framework is designed to prevent “disguised employment”, whereby a company engages PSC contractors who work in the same way as employees, but who through using a PSC rather than being engaged under PAYE, pay less tax. The legislation is therefore designed to determine which PSC contractors are genuinely self-employed, and which are actually employed (for tax purposes only).
PSC contractors who are determined to be employed for tax purposes (referred to as ‘Inside IR35’), must pay income tax and National Insurance Contributions (NI) on the entire assignment income, just as an employee would.
PSC contractors who are determined to be truly self-employed (or ‘Outside IR35’) are not required to pay income tax or NI on the assignment income. Generally, the contractor will take the majority of assignment income in the form of dividends instead (which are subject to a lower tax rate).
It is important to note that IR35 only applies to contractors who operate through a PSC. The rules do not apply to PAYE contractors, umbrella contractors or sole traders.
You might be thinking…
- I don’t understand IR35
- We don’t engage with that many contractors
We’ll help you navigate the minefield of IR35
How can Hybrid help?
- Education – We provide half-day or full-day onsite education sessions to give your business more detail about the changes and what they mean for you.
- Identifying risks – We offer both IR35 and wider scope audits to determine your current areas of risk whether you have one or multiple contractors providing you with services.
- Best practice – We have devised a practical set of working arrangements for engagers that, when implemented, will maximise the number of genuinely self-employed contractors you engage. Also included are new terms and conditions – with contractors and with agencies – that support those working arrangements. This service can be tailored to your specific business.
- Supplier due diligence – Supporting your business with in-depth checks on current or new agencies, umbrellas and/or accountancy firms to ensure you are using compliant, knowledgeable, trustworthy partners.
- Bespoke consulting – a fully tailored, in-depth consulting service to lead and project manage all your IR35 activities, helping you with strategic decision-making, implementing suitable processes to engage and work with contractors, assessing all your contract roles, making changes to supply types as needed and communicating activities and outcomes to the supply chain.
Our approach to helping you with your IR35 compliance
Simply book a call with us and one of our experts will talk you through our IR35. We’ll need to build a good understanding of your business, your market and the way you would like to deal with your contractors to understand the level of support required.
We’ll set out our fixed fee and timescales for helping you with the chosen solution. We like to keep this short and straight to the point so you can make a quick decision to instruct us.
Preparing the draft
Once you’ve instructed us, we’ll go ahead and prepare the solution, which will take into account the key points discussed during the scoping call.
Taking you through the terms
Once our expert has finished the first draft, they’ll take you through the elements to make sure you’re happy and clear with all the contents, the tone of voice and the format of the documentation. From there, we can make further adjustments before sending you a final version ready to use.
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