Reforms to non-payroll work rules postponed to 2021 (HMRC, 18 March 2020)HM Government Good Work Plan, December 2018 (PDF)IR35: working through an intermediary (gov.uk)Guidance: Non-payroll working through an intermediary (gov.uk)Guidance document: Rules for non-payroll work from April 2020 (HMRC, 11 July 2019) Non-payroll work rules are designed to ensure that individuals, such as employees, but through their own limited liability company (often referred to as “personal service” Company” or “PSC”). or other intermediaries pay about the same income tax and social security contributions (NCI) as people who are directly employed. These rules are commonly referred to as “IR35”. You may be offered systems that falsely claim to circumvent work rules outside of payroll. Learn how to identify tax avoidance patterns for entrepreneurs and temporary workers. For services provided to medium or large client organizations outside the public sector, the amendments will apply to all payments made on or after April 6, 2021 for all services provided on or after April 6, 2021. According to the original rules, if the IR35 applies to an IR35 contract, you must calculate the so-called accepted payment on your limited partnership income. This means that you deduct your PAYE (Pay As You Earn) salary, a 5% expense allowance, plus any pension contributions. According to the new rules, the calculation is much easier. Fees paid to the contractor, called “deemed direct payment,” must be treated as earned income, just like wages. This means that PAYE and NI employees will be deducted from this assumed salary.
Then, the payer of fees, which could be the agency or the tenant, will have to pay their payroll tax in addition – these cannot be legally deducted from the contractor`s fees. Non-tariff work rules for customers, employees (contractors) and their intermediaries. So, what are the IR35 rules? Until March 2021, the public sector end customer is responsible for determining the IR35 status of its contractors and, if it is decided that the entrepreneur is operating under IR35, ensuring that the correct income tax and NIC are paid. During the course of the review, concerns were raised about how the rules are applied when the client is abroad. The government has listened to these concerns and will amend the legislation to completely exclude foreign organisations with no presence in the UK from the audit of work rules outside of payroll. This means that the existing rules for engagements outside the public sector will continue to apply to assignments where the client is completely abroad, and the person`s limited liability company will continue to determine the person`s status. IR35 is another name for non-payroll work rules. It is designed to assess whether a contractor is a true entrepreneur and not an employee “camouflaged” to pay taxes.
In short, IR35 involves the application of three main principles to determine the employment status from the case of ready-mixed concrete. These are called the most important “job tests”: Home / Insights / How do I know if the IR35 rules apply to me? Use our simple online assessment to analyse and check if you are covered by HMRC rules. Developed by experts, this assessment covers all areas of potential risk and helps assess your status. If you are a true entrepreneur, freelancer, temporary worker or consultant who is doing business on your own account, you should have nothing to worry about ir35. This is provided you take the time to understand how the law works and apply best practices to ensure they do not apply to you and prepare a defence when it is investigated by HMRC. If IR35 applies, each piece of legislation (Chapter 8 and Chapter 10) provides for the method of payment of the additional income tax and NCI. However, pay particular attention to the different tax treatments, because under the new rules (Chapter 10), social charges cannot be deducted from entrepreneurs` fees and are paid in addition. Download your free and detailed guide to know what entrepreneurs and freelancers need to know about IR35 rules. HMRC continues to provide help and support to entrepreneurs to understand the rules.
Information on available support, including webinars, can be found on HMRC`s help and support page for self-employment. If you are a contractor working through a limited liability company, you need to understand how the legislation works and apply best practices.  This means that you must meet HMRC`s definition of self-employment by ensuring that your work is project-based, that you are not managed by anyone on the client side, that you have not offered exclusivity to clients, and that you have contracts associated with the provision of services, as opposed to an ongoing relationship. IR35 affects you as an entrepreneur if you work for your own limited liability company. If you work through a holding company (a limited liability company that employs contractors and acts as a third-party supplier between the contractor and the client), you don`t have to worry about IR35 because you are already paid through the PAYE system and are working under an employment contract with the holding company. IR35 also does not apply to sole proprietors, but the rules for determining employment status do. In other words, if the entrepreneur is registered as a self-employed worker but works as an employee, the end customer is responsible for paying the additional taxes due. Although the entrepreneur does not assume any responsibility for his employment status, there may still be a deduction from income as it must be put on the company`s payroll. In general, IR35 does not apply if the contract applies to services and not to employment. To unravel this, you should see if the contract explicitly mentions these principles: the authorities became responsible for deciding whether the rules were applicable when they hired workers who provide services through their own intermediary. If your client determines that your contract complies with the non-payroll work rules and you are therefore considered an employee for tax purposes, your client or the agency paying your expenses is also responsible for deducting income tax and employee ICIs before paying you.
You will also have to pay the employer`s network cards and, if applicable, the apprenticeship tax to HMRC. The Chancellor announced in the 2018 budget that the IR35 rules of the public sector would be extended to the private sector in April 2020. These changes to IR35 were then carried forward by one year to 2021. These rules are as follows: The rules only apply to employment status for tax purposes and not to employment status for rights. As of April 2021, it is the responsibility of our clients to determine if the non-payroll work rules apply, i.e. if this task is “under THE 35”? Companies can refer to HMRC guidelines and the Cest (Employment Status for Tax) tool. Although feedback varies, the CEST tool gives good control of HMRC`s approach and the indicators they are looking for. HMRC has confirmed that it is making further enhancements to the CEST tool, and these changes are expected to be in place by the end of 2021. TH aims to work in consultation with clients who would like additional assistance in their assessments and review of a wide range of potential service provider partners such as Grant Thornton and Brookson. An inspector or court judge will use this fictitious/hypothetical contract to determine whether it is an employment contract if IR35 applies, or a business-to-business service contract where IR35 does not apply.
When IR35 first came into effect in 2000, each contractor was responsible for assessing their own IR35 status, and it was the limited liability company or agency of the person responsible for reviewing taxes and social security due when IR35 was applicable. The regulations were then amended in 2017, so that in the public sector, responsibility for the correct implementation of ir35 was transferred from the contractor to the public body that orders it. The responsibility always lay with the entrepreneur in the private sector. The non-pay rules apply when an employee provides services to a client through a personal services business (PFC), but would be classified as an employee if they were under contract directly with the client. Before 6 April 2021, it is the responsibility of the GmbH to decide on its own employment status for each order. From 6 April 2021, the way the rules are applied will change. All public sector bodies and medium and large private sector companies are responsible for determining whether the rules apply – i.e. are you “inside IR35” or “outside IR35”? If the private sector client is considered “small”, limited liability companies remain responsible for deciding the employment status of the entrepreneur and applying IR35.
Non-payroll work rules apply regardless of the number of customers and orders a contractor is working on. .