Uncertain about IR35? Learn more on IR35.
Off payroll working (IR35)
Off payroll working usually applies to workers that are providing services through a company. These workers are usually called contractors. The IR35 rules ensure that they pay the same Income Tax and National Insurance contributions as normal employees would.
Who does IR35 apply to
These IR35 rules apply to; workers who provide services through a mediator, a client who receives services from a worker through a mediator, an agency which provides workers’ services through their own mediator.
The off payroll working rules apply on a case-by-case basis. A worker may have multiple contracts but some of which do not apply to the off payroll working rules and some that do apply.
If your contract is “inside IR35“, HMRC will recognise you as an employee and you will receive income tax and national insurance contributions just like other employees would.
However, if your contract is “outside IR35”, HMRC will recognise you as self-employed and you will be relieved of tax burdens as other self-employed individuals.
To be classed as “outside IR35” the contract you sign with your client should include details of the services you’ll be providing, where and when you’ll be working for them. The contract should not include demands from the client which could include things such as performance monitoring. The key to being classified as “outside IR35” is to offer someone a service rather than a contract for a service. In this situation, it can be interpreted that you could just send someone else to do your work in place of you.
Who works out if its inside IR35 or outside IR35
The rules for who works out if its inside or outside IR35 has changed since 6th April 2021.
All public authorities, medium and large sized clients who are not in the public sector, are responsible for deciding whether the rules apply or not. If the worker provides services to a small client which is not in the public sector, the worker’s intermediary is then responsible for deciding whether the rules apply.
Common Misconceptions about IR35
A common misconception about IR35 is that if you are working the same contract for a prolonged period then you are guaranteed to be classified as “inside IR35”. However, this is not the case as there is no formal line that guarantees you to be inside or outside of IR35. This is judged on a case-by-case basis. The longer your contract runs for, the more risk there is that you are going to be classified as an employee.
Another mistake is assuming that just because your contract says that you are not an employee then you are automatically “outside IR35”. The way you conduct your work as a contractor is more dominant than what is stated in your contract when figuring out if you are inside or outside of IR35. If the way you conduct your work is like an employee, then you will be more likely to be classified as “inside IR35”.
Here are some scenarios that will help you to differentiate Inside IR35 and Outside IR35.
The main thought process is that if your contract fulfils the job of an employee, then you are classified as an employee. This will classify you as “inside IR35”.
If you are still unsure about whether you are inside or outside IR35 and are a contractor, please have a look at this link which is directly provided by HMRC.
If you are an organisation, please have a look at this link.
These flowcharts will help you in the thought process on figuring out if you are inside or outside of IR35.
Still confused? Don’t be afraid to call us on +44 2045 518463 and get an expert opinion from one of our experienced professionals here at CIGMA Accounting. If you would like to know more, feel free to get in touch.