In the past, it hasn't just been new contractors who have been caught out, even experienced workers can get tangled up in the requirements of the legislation. It's therefore imperative to understand the basics to make life as a contractor easy as possible
It is first necessary to understand exactly what IR35 is before looking at how it can affect contractors as well as the pros and cons of being inside and outside. Read on as we explore the full picture.
To put it simply, IR35 is a piece of government legislation which determines whether a contractor should be classed as in full-time employment rather than self-employed when it comes to paying tax.
This legislation was introduced in April 2000 to eliminate what the government saw as 'disguised employees'. These 'disguised employees' were seen to be attempting to take advantage of the tax efficiency they receive while working through a limited company, despite doing the job of a full-time employee.
So, to tackle the issue, the government implemented the legislation to clarify whether a person should be deemed employed in the eyes of Her Majesty's Revenue and Customs.
The differences between contracted work and employment can often be a confusing and unclear area, so there are specific terms and requirements that the government has issued as part of IR35 to make the situation easier to understand.
Knowing exactly where you stand with regards to the legislation can be confusing, but it is imperative to understand.
Recognising the phases 'Inside IR35' and 'Outside IR35' is crucial to defining an individual's status and will have a significant impact on contractual work that is undertaken in the future.
If someone's role is classed as full-time employment for an end client, HMRC will refer to this individual as being 'inside IR35'.
This ultimately means you must stick to the same government guidelines that any normal employee would. A person must ensure they pay the appropriate taxes for standard Income Tax and National Insurance on all earnings through what is classed as a 'deemed payment' at the end of the tax year.
Working out your deemed payment can be complicated, so it's best to speak to your accountant to make sure you get it right. Otherwise, you could face heavy investigation from HMRC.
Should an individual be found to be 'inside IR35' following the investigation, HMRC will order them to all Income Tax, NICs and interest they may have accrued, as well potentially a penalty which should have been paid during the accounting period in question.
Given HMRC can investigate as far back as six years, being found non-compliant can have huge financial consequences so diligence is highly recommended in this situation.
When a person is outside IR35, HMRC will deem you as a genuine business. This will mean you will be working outside of IR35 rules.
In this situation, you will be able to pay yourself a salary, draw the remainder of income as dividends, and remain responsible for your taxes as usual.
There are key differences in a person's daily working routine that will clearly outline why they are working inside or outside IR35.
For example, if a person is working outside of the legislation, they would be the one to decide when and where they work rather than the client. This is not something you would often see in full time employment.
Additional points include having no obligation for ongoing work, how the worker is paid and whether they have access to corporate benefits.
If you are still unsure where you sit, there are tests you can take online which will assess your current work practices and let you know if you are 'inside' or 'outside' IR35.
HMRC recommends using their CEST tool which will take you through different requirements. In the past, HMRC has said that it will stand by the results of CEST, however, it's still worth being wary as they can still open up an investigation.
If a contractor is working within the public sector, then it is up to the client to determine whether or not IR35 applies. In this scenario, the client must deduct income tax and National Insurance as they would do for employees.
However, if the contract is within the private sector, an intermediary is required to make an extra payment to compensate for the additional tax and NI that HMRC would have received on an equivalent employee's wages.
It is crucial to note that soon, this will soon not be the case. From April 2020, the IR35 rules will be altered to be more in line with the public sector. It will be up to the medium to large-sized clients to determine whether their contractors fall inside or outside IR35 and work out the contractor's deductions.
It can be a headache try to understanding whether you are working inside or outside IR35. It is therefore understandable that, as a contractor, you will want to circumnavigate IR35 altogether to ensure you do not come under investigation.
The best way to do this would be to work with an umbrella company as all the income that you earn will be deemed 'employment income'. Contractors using umbrella companies will also receive additional benefits, including statutory benefits like holiday pay and sick pay that are usually only offered with full-time employment.
If you do choose to go down the route of an umbrella company, it should go without saying the importance of researching the company's history and looking at their fee structure. Also, be sure to take note of their payment frequency and any other possible benefits such as insurance they may be able to offer you.
The best way to compare companies is by using our clear umbrella company comparison site. It provides a fantastic way to gauge each company's financial benefits and additional perks and determine which one will be the best deal for you.
Any contractor considering switching to an umbrella company will want to know how to find the best provider to work with.
Although you could spend your precious time and energy searching the web for the best umbrella company, there is an easier way – using an umbrella calculator.
In this guide, Umbrella Supermarket explains why every contractor should use an umbrella calculator in 2021.
If you are considering contracting you will need to decide on PAYE or umbrella.
It can be a difficult decision to make and contractors will inevitably be questioning which option will be the best for them.
To help every contractor get on the right track for them, in this guide Umbrella Supermarket looks at PAYE vs umbrella, outlining the key differences and how this will impact you.
There are many reasons that contractors across the UK opt to work under an umbrella company.
Umbrella companies offer an easy way to contract and remove the need for the contractors to worry about the burdens of admin, finances, tax and IR35, all things that limited company contractors have to deal with.
For this reason, many contractors will be weighing up their options and questioning whether it is worth using an umbrella company in 2021. To help make the decision that little bit easier, Umbrella Supermarket has put together this guide on the pros and cons of using an umbrella company.
Any contractor that is considering operating through an umbrella company in 2021 will need to understand Umbrella Company fees - from why an umbrella company charges fees, how they are paid to how much the contractor will pay.
In this guide, Umbrella Supermarket answers those all-important questions to help every contractor know exactly where they stand when it comes to umbrella company fees.
If you’ve made the decision to contract through an umbrella company in 2021, you will next need to find an umbrella company that’s right for you.
After all, there are lots of umbrella companies out there, so how do you know which one to choose?
To help you find the best umbrella company for you, in this guide Umbrella Supermarket outlines what makes a good umbrella company, so you can rest assured you’re making the right move.
One of the many advantages to operating through an umbrella company for contractors is that they become an employee of their chosen provider.
In turn, this means that the contractor will be automatically enrolled onto the umbrella company’s workplace pension scheme.
To help contractors find out more about umbrella company pensions Umbrella Supermarket has put together this handy guide.
If you are considering contracting through an umbrella company you will naturally have questions and queries over how they work.
After all, making the move to umbrella can be a big step for contractors. To help, in this guide Umbrella Supermarket explains how to get started with an umbrella company and share our top tips for using one in 2021.
PAYE or umbrella is a question asked by every contractor. Which one you opt for will have a big impact on your contracting career and lifestyle. So, it's important to make the right decision for you.
To help makes things a little bit easier, Umbrella Supermarket has put together this guide on PAYE or umbrella, outlining the key differences between each, to help you make the best and most informed decision for you.
One of the many benefits to working through an umbrella company is that you will receive holiday pay as well as a range of other statutory benefits including sick pay, maternity and paternity pay.
To find out more about umbrella company holiday pay, and how to calculate how much you will be entitled to, Umbrella Supermarket has put together this handy guide.
Contractors must make several decisions throughout their contracting careers. One big decision contractors have to make is how they will operate.
One way that contractors can work is through an umbrella company.
Umbrella companies have become an increasingly popular way to contract in the past few years, offering many benefits to the contractor. But, how do you know whether this option is right for you?
To help every contractor make the right decision for them, in this guide, Umbrella Supermarket explains when not to use an umbrella company.
There are tons of benefits to using an umbrella company, which is why they have become such a popular option for contractors in recent years.
After all, an umbrella company takes away the stress and hassle of operating through a limited company whilst offering contractors a range of advantages, such as statutory rights, paying them a salary, deducting correct tax levels and National Insurance, and taking care of tasks like expense processing and invoicing.
However, as more and more contractors opt to use the services of an umbrella company, more providers have started to claim that they are HMRC approved.
To bust the myths around HMRC approved umbrella companies and get straight to the facts, in today's guide Umbrella Supermarket look at whether HMRC approved umbrella companies really exist, so you know exactly where you stand.
If you're considering making the leap to contracting, you will understandably want to know how much you will have to pay in umbrella company costs. After all, this amount comes directly out of the contractor’s pocket, so it’s important to be clued up on how much you should expect to pay.
To help contractors, in this guide Umbrella Supermarket answer the all-important question of how umbrella companies cost in 2021.
