What is IR35?
The IR35 rule was introduced more than ten years ago by ex-chancellor Gordon Brown. His aim was to crack down on the number of contractors setting up limited companies in order to reduce their tax and National insurance contributions.
Historically a large number of contractors and organisations were said to have turned somewhat of a blind eye to the IR35 rule up until 2017 when it came into play for contractors working within the public sector.
From this time if you were a public authority planning on offering a temporary job to someone who worked through their own intermediary (their own company, partner or another person such as an agency), the off-payroll rule might apply.
Private sector hit by IR35 rule
In April 2020 the IR35 rule is being further expanded and introduced to the private sector. This will no doubt create some fear and confusion with contractors and companies who have suddenly become aware of this.
The good news for the government is that this has the potential to be a great revenue raiser and will put an end to tax “dodging” by disguising employment status. The bad news for the contractor is that they might be getting less in their bank account each month!
In a nutshell the IR35 rule affects contractors who do not meet HMRC’s definition of ‘self-employed’. This rule however, only applies where the end client is a large or medium-sized business. Contractors who are working for small businesses will be outside the IR35 off-pay rules.
Will IR35 affect me?
With so many larger companies being dependent on contractors, we think that now is probably a good time to start seeking advice and planning ahead, which could help mitigate the worst outcomes, from not abiding by this new rule.
The web is full of information and helpful blogs on IR35 and HMRC has set up a dedicated helpline to answer any IR35 queries which could help you. However, your accountant or professional adviser should also be able to provide you with up-to-date information.
HMRC helpline on 0300 123 2326 or email firstname.lastname@example.org
Contractors that fall inside of IR35 will pay significantly more tax. The following calculator should give you an idea of the impact it will have on your earnings.