Heard about IR35 and not sure if it applies to you?
From April 2020, IR35 will apply to the private sector. So what is it, and what do you need to think about?
IR35 is otherwise known as the Intermediaries Legislation, and was put in place to prevent a loophole that stopped individuals paying less tax.
Previously, employees could set themselves up as a Limited Company, which meant they could be classed as a Contractor, and take home more income and pay less tax than they would as an employee. The issue with this, is that they were essentially still employees, getting the same benefits as an employee such as training, pension contributions, sick pay and more. This was called being a ‘disguised employee’.
There are a number of things that HMRC look at to see if a contractor is actually a ‘disguised employee’. If it is deemed that they are, (what is called working Inside IR35) they will need to make a ‘deemed payment’ – essentially paying the tax and National Insurance contributions they would have had they been employed directly by the company. There may also be interest and penalty charges, so could amount to tens of thousands owed.
If a Contractor is outside IR35, then there is no additional payment to be made to HMRC, and directors can pay themselves a salary and take income from dividends.
Not sure whether your business, or the contractors you are paying, are inside or outside IR35? There are a lot of grey areas, so it is always best to check your contracts and consult an expert before making any decisions over your IR35 position.
Struggling with IR35, company accounts, or other bookkeeping matters and not sure where to turn? We recommend you speak to Mark and the team at Choice Bookkeeping. With offices in Monmouthshire and Pembrokeshire, they cover all of South and West Wales, and can help keep you compliant. You can find out more about Choice Bookkeeping here