IR35 changes for contractors
11th September 2017
If you’re a contractor, it’s likely you will have heard about IR35 – but whether or not you fully understand it is another matter!
First introduced in April 2000, IR35 is an extremely technical piece of legislation which affects all contractors who fail to meet HMRC’s definition of self-employment.
It is intended to clamp down on disguised employees – people who HMRC believe take advantage of a corporate structure instead of being taxed as employees.
IR35 is a result of some individuals posing as contractors to avoid certain tax brackets, while continuing to work under a separate employer to receive income and pay less tax.
This has also caused a domino effect on genuine contractors, who need to prove their status to HMRC under IR35.
So that’s the legislation in a nutshell, but what are the recent changes that may affect you?
Previously, intermediaries were required to decide whether IR35 applied to individual contracts.
The personal service company or other intermediary would then calculate and pay any tax and national insurance contributions (NICs) to HMRC on your behalf.
From April 2017, public sector companies with off-payroll workers took on the responsibility for applying IR35 and paying any tax or NICs if they deemed you to be within the legislation.
Public sector companies
Contractors working with any of the following organisations no longer have their IR35 status determined by their intermediary:
- government departments
- emergency services
- the NHS
- local authorities
- the BBC and Channel 4
- educational institutions, including universities.
Does this apply to you?
If you’re a contractor working in the public sector, you may be treated as a company employee for tax purposes.
You will still operate through your intermediaries, although your fees will be deducted at source.
This means you will be brought in line with national insurance and PAYE and face the prospect of larger tax bills as a result.
Another thing to consider, if your client deems you to be within IR35, you will no longer benefit from the 5% corporate tax allowance designed to help with administrative costs to comply with IR35.
Talk to us
IR35 is extremely complex and any contractor operating through an intermediary could potentially be investigated under IR35.
If you’re a contractor who is unsure about how these changes will affect you, get in touch with our team of advisers.