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
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Our approach to helping you with your IR35 compliance

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Scoping call

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.

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Proposal

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.

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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.

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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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