Tax on Contractors IR35

Off Payroll Working

We have specialist accountants who can advise you on tax on contractors and IR35 under off-payroll working legislation. To discuss your contracts please call us.

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The IR35 rules were brought in by the Government to prevent companies from laying off staff, only to take them on again in the same jobs as contractors, so avoiding having to pay National Insurance and tax for them. This issue impacted the employment rights of the staff and became a tax loophole for companies, so the government stepped in. IR35 stands for the “Intermediaries legislation”, and it is a group of regulations set down by the Government that impact tax and National Insurance contributions. In summary, if you employ someone as a contractor and they claim to be self-employed, but your contract is their only source of income and dictates when and how they work, then HMRC will deem them not to be self-employed but falling under IR35 instead. We can assist you with all matters relating to IR35 rulings, so please contact us to find out more.

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  • Long-term, permanent commitments to a company are shared among employees. To keep their jobs, employees must continually get and complete work assignments. Independent contractors aren’t obligated to stay with companies long-term. Companies hire contractors to complete precise quantities of work whenever they need it. Contractors can accept or refuse work requests as they see appropriate. If they accept the position, they must complete the job for the company as agreed in the contract.
  • Employees have the right to paid annual leave (a minimum of 28 days for full-time workers), statutory leave, minimum notice periods, protection against unfair dismissal, flexible working, time off for emergencies, joining a pension scheme, and redundancy pay. However, independent contractors have fewer legal rights than employees while contracting for a company. For example, they can’t expect annual paid leave for the time. In addition, companies must ensure their contractors follow health and safety norms and data privacy laws.
  • The company decides its employees’ and workers’ schedules, locations, hours, and days. Freelancers select their work schedules, including the number of hours and days they work for businesses that engage them as independent contractors. Then, they choose their direction by accepting or rejecting job offers. The company decides how much to pay the worker, but they must pay at least the minimum wage. Contractors choose how much to charge for each task, which varies based on the work. No preset pay structure exists as a result. Instead, most send bills.
  • People are permitted to work for a different business if their two employment does not have a conflict of interest. Several companies include a clause in the employment contracts that it’s illegal for them to work for a competitor in the same industry. Independent contractors can work for multiple companies at one time. 
  • The company determines an employee’s position and daily tasks. Contractors are in charge of the type of work they undertake and the tasks they complete for their companies. They can do the work in any way they deem fit.
  • The company must ensure employees’ health and safety. They must supply employees with information, instructions, and training and implement organisational processes that all employees must follow. Independent contractors must have their training to do their jobs well. Companies will need to ensure that contractors they hire can deliver the job without any further training.
  • The company handles its employees’ PAYE taxes. Pay-as-you-earn (PAYE). Contractors aren’t taxed by their employers or clients since they are paid a preset amount per contract. Therefore they are responsible for their tax compliance.

Be careful if you can be employed and self-employed by the same company. If you appear to be employed, you most likely are!

Consider the scenario of a person who devotes a portion of their time to the field of graphic design as an example. Yet, the company expects them to complete additional tasks on days when they are not scheduled to work and submit their fees as if they were self-employed. It is hard to imagine how this could not be disguised as employment. They are carrying out precisely the same tasks for the same company, following the instructions provided by the client while using the company’s equipment. In this scenario, HMRC would argue that they should be paid through PAYE instead of being paid directly.

Yes, but make sure it’s not ‘disguised employment’ HMRC recognises the possibility that a person might be self-employed while also working for another business. If the person had just begun self-employment and was pursuing new clients without telling their company.  It is also conceivable for people to work for a single client at a time before moving on to another employer and career opportunity. An example of this would be a person doing a particular function inside a project, such as a camera operator working on a film or a social professional conducting an assessment.

The question is if, after a fair amount of time, they have more than one client or are actively seeking additional. Therefore, while a camera operator may only work on a single film at any given time, they may have participated in the production of many films over the course of a year or two.

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