{"id":56691,"date":"2021-06-23T15:28:39","date_gmt":"2021-06-23T07:28:39","guid":{"rendered":"https:\/\/zegal.com\/?p=56691"},"modified":"2023-03-23T11:50:25","modified_gmt":"2023-03-23T03:50:25","slug":"everything-ir35","status":"publish","type":"post","link":"https:\/\/zegal.com\/en-au\/blog\/post\/everything-ir35\/","title":{"rendered":"Everything you need to know about IR35"},"content":{"rendered":"

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\"tax\"If you are a freelancer, contractor, consultant, in any way self-employed, or are hiring those who are, you’re going to need to know everything you can about IR35. <\/p>\n

Here is our complete IR35 guide including exactly what it is, who it affects, whether you fall inside or outside of it, and a checklist to ensure you comply. <\/p>\n

<\/span>What is IR35?<\/span><\/h2>\n

In a nutshell, the new off-payroll IR35 rules<\/a> is a set of tax laws that form part of the Finance Act in <\/span>the <\/span>UK. After a year’s delay due to Covid-19, the regulations took effect on April 21st, 2021. <\/span><\/p>\n

So, what have they changed the rules for? Well, the new IR35 rules were created to distinguish employees \u201cdisguised\u201d as individual contractors for tax purposes. <\/span>In recent times, the gig economy has contributed to an explosion in contract employment where an individual engages with a business, often through a third party, such as a personal service company (PSC). And thus receives tax benefits they otherwise wouldn\u2019t if they were an employee.<\/span><\/p>\n

Previously<\/span>,<\/span> it was the role of the PSC to determine whether the individual falls inside, or outside the IR35 regulations to pay any increased tax<\/span>. Now, <\/span>the business that engages the contractor needs to make this assessment.<\/span><\/p>\n

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Inside IR35 <\/h4>\n

Specifically, when you are inside IR35, you pay the same national insurance and tax as a permanent employee. You should have the correct PAYE deductions as a regular employee taken from your salary. Also, your employer\/client will match your national insurance contributions to the government. <\/p>\n

Quite simply, being \u2018inside IR35\u2019 means you are paying tax appropriately for your role as an employee. If your role changes, you will need to reassess your status. <\/p>\n

If you are found to be \u2018inside IR35\u2019 after an enquiry, HMRC will calculate the tax, national insurance contributions, and interest, for the time period. You will also be subject to a penalty if they decide your status was incorrect. <\/div>\n
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 As a rule, if you are receiving the same rights as a permanent employee, you are likely to be inside IR35. This includes sick pay, holiday entitlement, sick pay, and certain benefits.<\/div>\n<\/div>\n

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<\/span>Outside IR35<\/h4>\n

Generally, being outside IR35<\/a> means you are a legitimate contractor receiving a salary from your limited company. <\/p>\n

Contrary to an employee, it\u2019s your responsibility to pay the correct national insurance and taxes on the funds resulting from your work. Additionally, you are not subject to PAYE from your contract client. However, you may still be subject to an enquiry from HMRC.<\/p>\n

<\/span>Who does IR35 affect? <\/span><\/h2>\n

The new rules have implications for businesses across all sectors but the government maintains that it will not affect genuinely self-employed individuals. <\/span><\/p>\n

Contractors that work through their own limited company don’t get benefits such as holiday leave or sick pay. Instead, they benefit from tax efficiencies. However, sometimes contractors use this tax efficiency while also receiving employee benefits. HMRC amended the off-payroll working rules to stop this from happening. Now contractors, who would have been an employee if they were providing services directly to clients, pay the same tax and National Insurance contributions as employees.<\/p>\n

For example, a contractor working onsite for a rolling contract using a specialised computer provided by the client and being paid monthly wages would likely be inside<\/em> IR35. This is especially true if they need to clear a holiday with the client. <\/p>\n

Another example is a contractor working from home, on their own laptop, for a four-month contract with a fixed payment for the work. That would usually fall outside<\/em> IR35.<\/p>\n

While an IT contractor working for a firm on a one-off project which is due to take three months, using their own equipment, working from home, and being paid a fixed amount for that work, would usually be seen as outside IR35.<\/p>\n

These changes were set to take effect in 2020 but were put on hold during the initial COVID-19 pandemic. They officially came into play in April 2021. <\/p>\n

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<\/span>Determining IR35<\/span><\/h2>\n

Again, the assessment obligation will sit with the business that engages the contractor<\/span>. <\/span>Should contractors be treated as employees for tax purposes, the <\/span>client <\/span>will <\/span>then <\/span>be responsible for the tax burden.<\/span><\/span><\/p>\n

HMRC will take a view of the whole situation and how it works in real life, rather than just how the contract appears on paper. But these are the principles:<\/span><\/p>\n