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IR35 Overview

WHAT IS IR35

“The off-payroll working rules (IR35) were introduced in 2000 and require that individuals who work like employees, but through companies, pay similar taxes to other employees” (HM Treasury).

By law “medium and large businesses will need to decide whether the rules apply to an engagement with individuals who work through their own company” (HM Treasury). This already applies to the public sector and will apply to the private sector from 6 April 2020.

IR35 CHANGES TO CONTRACTING

IR35 will apply to all contractors who work through their limited company. Those working via PAYE or through an umbrella company will be exempt. At present candidates who work through their limited company can receive an income in a more tax effective way as they aren’t required to pay NI on dividends.

Before IR35 implementation a limited company worker is able to take a low salary and the rest as dividends where a tax rate of 7.5% applies. This is quite a considerable reduction from the minimum employee tax rate of 20%.

After April 2020 if a role is deemed to be inside IR35 then tax and NI deductions will be made at source however a 5% allowance can be taken for expenses (private sector only).

WHY SACCO MANN IS PREPARING NOW

We pride ourselves on our ability to provide a high-quality service and have done so for over 20 years. During this time we have supported clients through a number of changes impacting recruitment.

Sacco Mann understands the benefits of hiring additional support on a temporary basis. We will work hard to ensure preparations are made so our clients can continue to hire the best talent in a straightforward way.

We will be providing information to temporary workers, or those considering undertaking an interim assignment. Sacco Mann will ensure that our registered candidates are made aware of what IR35 is and the options available to them so as to minimise impact on our clients when they are looking to hire interim support.

PURPOSE

The purpose of IR35 is to identify whether those working through their limited company are doing so on a genuine B2B basis or whether they are a ‘disguised employee’ i.e. if they weren’t working through their limited company could they be an employee? It’s a way for HMRC to be tougher on those seen to be tax evading.

DETERMINING WHETHER A ROLE IS INSIDE OR OUTSIDE IR35

This rule declares that it is the responsibility of the organisation where the individual is actually working, ie our client’s responsibility to determine the IR35 status of a role. The client must take ‘reasonable care’ in doing so. HMRC provide a service called CEST (check employment status for tax) although simply completing this is not taking reasonable care, the full picture must be looked at. Factors may include Substitution, Control and Mutuality of Obligation.

The client must inform the intermediary (the recruitment agency or contractor’s limited company) before the start of the contract whether the role is inside or outside IR35.

Inside IR35 – if the candidate wasn’t working through their limited company then could they do the same job on an employee basis? If the role is found to be inside IR35 then the temporary worker will need to pay tax and NI as if they were an employee.

Outside IR35 – to be determined as outside IR35 the overall picture needs to be taken into consideration as well as the wording of the contract. In this case the temporary worker is not carrying out the work of an employee e.g. they can work when they want, they will use their own resources (such as laptop) and they could substitute someone in their place if required. However they also won’t be able to attend events (such as a Christmas party) or be entitled to a notice period as these are employee benefits/ rights.

HOW CAN WE HELP?

The above information provides just a snapshot of IR35 and how it may impact contractors and clients moving forward. For further information or to discuss how IR35 changes may impact future interim hire plans please get in touch by calling or emailing our Interim Specialist, Sarah Murray.

Email: sarah.murray@saccomann.com

Phone: 0113 245 3338


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