So, what exactly is IR35 and how will it affect you?
IR35 is a tax legislation which sets out to prevent tax avoidance amongst workers who supply their services via an intermediary such as a Personal Service Company (PSC). HMRC refers to these workers as “disguised employees” – contractors who do not generally pay the correct National Insurance Contributions (NIC) or income tax.
Essentially, with the IR35 reforms, if you are a contractor providing your services through a personal services company (“PSC”), there will be tests in place to determine whether or not you would be considered to be an employee were it not for the existence of the PSC.
Legitimate and responsible independent contractors will therefore likely deem themselves as ‘outside IR35.’
If you are currently operating through a LTD company, you are responsible for determining your IR35 status until the 2020 reform.
Here are 3 routes to consider to ensure that you are fully compliant come 2020:
1) Consider switching to an umbrella company
This would ensure that you are exempt from the off-payroll rules. Ensure that you only use an umbrella company if they are accredited members of: APSCo, FCSA or Professional Passport. One thing to be aware of is that umbrella company will result in less ‘take home’ pay as you will be paying full personal PAYE and NIC on your income as well as employers NIC and a fee to the umbrella company.
2) Remain operating through your LTD company
This is still an option as IR35 is on an assignment basis, so ultimately you may work on some assignments that are not in scope or fall outside of IR35.
3) Statement of work contracts
Engaging in project based contract will shift the responsibility of determining your IR35 status from the end client to your agency. It is, of course, vital that the working practices then match the contractual provisions.
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Russell King Associates have a partnership with an umbrella company that we strongly recommend should you decide to go ahead with this option. If not, we are happy to provide you with advice on how to best move forward.
