Contractor and IR 35
When does it apply to you?
As Albert Einstein said on his taxes ..'this is too difficult for a mathematician. It takes a philosopher'.
I would agree with Albert Einstein when I got to know that there are off payroll working rules existed but luckily we have accountants today to help sort out our accounts and taxes.
We at Taxaccolega are not philosophers but a team of accountants who can help you with your income taxes, tax returns, payment on accounts.
If you are contractor and have an income of more than £1000 per year you will have to fill in self- assessment tax return and pay income taxes.
Establishing if you are a contractor or an employee is very important. It will determine if you are within IR35 or outside IR35.
WHAT DOES IT MEAN TO BE INSIDE IR 35 AND OUTSIDE IR 35?
Being inside IR 35 means that HMRC sees you as an employee of the company and you have to pay taxes accordingly through deemed employment payment.
Being outside IR 35 means that you are considered as a self- employed.
HOW DOES IT AFFECT YOUR TAXES?
If you are inside IR 35, you are considered an employee for tax purposes. You will have to pay income tax and NI like an employee. There is an advantage as well, if your contract is inside IR 35 you will be entitled to maternity pay, sick pay, furlough payments etc. This
If your contract is outside IR 35, you can pay your taxes efficiently. You can pay yourself and pay taxes in a tax efficient way. If you are working as an self-employed the tax paid can be saved around 20% or more depending on the income that you have.
WHAT DOES IT MEAN TO BE A CONTRACTOR?
You are a contractor if the you are carry out some work for a company or an individual. A contractor will typically have some specialized skills such as an IT software designer and he will be working as a self- employed business. If you are a contractor the following will apply to you:
- ● You will be defining your own work schedule of work
- ● You cannot send a substitute for yourself to work that was assigned to you.
- ● You are not expected to be given work by the client and you are not obliged to accept it.
- ● You can work on more than one clients at a time
- ● You can advertise yourself actively even while you are working for a client.
- ● You use our own equipment and work space
- ● You are paid according to your job done and its not necessarily fixed.
UNDER WHAT STRUCTURES DO CONTRACTORS WORK?
Contractors can work as self employed and sometimes they work through an intermediary. This intermediary is often a limited company, however, according to HMRC website it could also be a partnership, a personal service company or an individual.
If a contractor is providing a service through an intermediary, and their contract with their client is such that they would be considered an 'employee' if they had not been working through the intermediary. HMRC wants to make sure that they are paying ' broadly' the same amount of tax and NI as other employees and hence the introduction of IR 35 or off payroll working rules. To calculate deemed employment tax check the HMRC website here
It is very important that you have know exactly what kind of services you are providing and if your contract is in IR35 or out of IR35. If HMRC finds out that you were supposed to be paying income tax and NI as an employee, you will have to pay back to HMRC.
The rules and the calculations can get a little complicated, if you need help in understanding or implementing IR 35 just call Taxaccolega accountants at 020 8127 0728. Accountants based in Surrey and Croydon are available at affordable prices to help you with your taxes and other accounting services such as VAT.
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