January 25, 2021
From April 2021 business in the UK that employs contractors through intermediaries should be preparing now for changes to the New Off-Payroll Working (IR35) Rules. There was a lot of confusion and worry as to how it IR35 rules would affect working. It is tax legislation that was intended to target possible tax avoidance practiced by those companies that hire contractors from limited companies.
This phrase covers two legislations regarding intermediaries, namely Chapters 8 and 10 of the ITEPA introduced in April 2000 and 2017 respectively. The main reason for introducing the IR35 was to be a distinguishing factor between a new class of employees.
The concern here is not with regular employees but what has been classified to be deemed, employees. Originally this meant that the contractor would have to pay up both the employer’s as well as employee’s NIC from the contracted earnings. In a way, this would-be double taxation and it reduces the take-home pay considerably. Due to this contractor got the short end of the stick as they were in a twilight zone – they weren’t employees and hence, had no employee rights and yet they paid higher taxes than employees but minus all the benefits.
How To Determine The IR35 Status?
As strange as it may sound, the IR35 status determination relies heavily on tests of employment which aim to check whether one is dealing with an employee or a contractor. Of these parameters the three that have been considered to hold the most weight are as follows: (they are in form questions)
What Exactly Are Off-Payroll (IR35) Rules?
These rules basically apply to workers who are not employees and thus, not on payroll or ‘off-payroll’. The worker here is providing services to the client not directly but through a third party i.e., an intermediary. Also, the same hold trues if the worker is functioning through their (the worker’s) own limited company.
Why Off-Payroll (IR35) Rules Were Introduced?
These rules were introduced basically to avoid tax evasion by workers who are not employees since they were more independent in how they provided services to the client.
When Do These Rules Apply?
The rules could apply to you if you fall into any one of the three stated below:
What Effects Do They Have On Payroll?
The Off-Payroll Tax Is Here
Though the off-payroll tax was bundled under IR35 there are some salient differences to it though deemed employment status validation, of course, is a moot point. Let’s have a quick brush of the changes:
The Silver Fining for Contractors
Previously contractors had to pay both NIC contributions but now that the employer’s part has to be cleared by the client it has made things easier.
What the new changes mean for business owners or clients (in this case)
New Responsibilities of Business Owners/Clients:
The effect of these changes on clients:
Increased Compliance + Increased Cost = Increased Risk
Contractors have previously had problems in determining their IR35 status and in the right calculation of tax. However, now the onus is on the employer. Considering this, it does seem prudent for clients to consult experts for the same.
Doshi Outsourcing with over two decades of experience in accounting, bookkeeping, payroll and legal admin work, can come to your aid here. Not only do our experts speak your language and demystify things, but they also are available over the telephone for quick consultations Quality work delivered on time your business indeed will be in safe hands. You will no longer have to worry about getting the business part of things right. Thin compliance, think Doshi Outsourcing – your ideal partner for accounts outsourcing.