What are the Off-Payroll Working rules?
The Off-Payroll Working rules (also known as IR35) can apply if a worker (for example a contractor) provides their services to an end-client through their own limited company or another type of intermediary.
An intermediary will usually be the worker’s own personal service company, but it could also be any of the following:
· A partnership
· A personal service company
· A sole trader
The end-client is the organisation who receives the services of a contractor. The end-client may also be known as the engager, hirer or client.
In cases where the services provided are similar to the kind of work an employee of the end-client might carry out, the rules make sure that the worker pays the same Income Tax and National Insurance contributions as employees.
Who do the rules apply to?
You may be affected by these rules if you are:
· A worker that provides their services through an intermediary
· An end-client that receives services from a worker through an intermediary
· An agency placing a worker that provides services through an intermediary
How can I check if the rules apply to me?
Ultimately, it is your end-client that is responsible for assessing the IR35 status of the assignment. Your end-client is obliged to provide a Status Determination Statement (SDS) to you, your agency and any other parties in the supply chain.
In advance of this, you can use the CheckEmployment Status for Tax service to help you decide if the Off-Payroll Working rules apply to a given assignment. Please note that this tool is not a complete guarantee of the IR35 status of a role.
If you are under the SDC (Supervision, Direction or Control)of your end-client while on assignment, you can be pretty sure that your assignment will be inside IR35. Find more information on SDC here.
What happens if the rules apply to my assignment?
If the rules apply, the costs of your employment (such as Employer’sNational Insurance contributions and the Apprenticeship Levy, if applicable)must be paid to HMRC by the party that pays you (known as the ‘fee payer’ –usually the agency, or the end-client if there is no agency involved). IncomeTax and Employee’s National Insurance contributions must then be deducted from your gross pay and paid to HMRC. As it is the fee payer that is responsible, this lands your agency with the burden of running your payroll, which most agencies would usually wish to avoid.
Usually a basic rate tax code is used, meaning that higher earners would need to account for and pay the extra tax and NI in the end of year tax return. Being taxed in this way also means that the costs of running your intermediary have to be covered out of the individual’s own taxed income, rather than as untaxed business expenses.
Using an intermediary for inside IR35 assignments may also leave the worker open to tax investigations by HMRC, which would incur further costs.
For these reasons it has now been widely acknowledged (including by HMRC) that if the assignment is inside IR35, the viable way to work is through a compliant, accredited payroll umbrella company (such as Competex Pro), which runs payroll for many different freelance workers, and pays them through PAYE.
It is possible to keep running a personal service company or other intermediary while being employed by a payroll umbrella company, and many individuals choose to do so for any outside IR35 assignments or freelance work they may do in the future.
When am I exempt from IR35?
There are some cases where the rules do not apply, and workers can continue using their intermediary if they choose to, with no change to how they are taxed.
Of course, if the work being done does not resemble the sort of work an employee would do, it is unlikely to fall within the rules. This goes back to Supervision, Direction and Control as mentioned above. Please note that it is always the end-client that determines the IR35 status, although it can be disputed if the worker decides an unfair decision has been made.
If the end-client is outside the UK, they are exempt from applying the rules. This means that there must be no presence in the UK, including any UK branches, subsidiaries, or offices.
Lastly, there is an exemption for small end-client organisations, which is good news for freelancers and consultants providing services through a company to many different small businesses or individuals.
A business is classed as ‘small’ if they meet two or more of the following:
· The turnover is under£10.2 million
· The ‘Gross asset total’ is under £5.1 million
· The number of employees is under 50
Small subsidiaries of large parent companies do not count as small businesses. Find out more about the small business exemption for IR35 here.
Now that you’ve determined whether or not the Off-Payroll working rules may apply to you, contact the team at Competex Pro at email@example.com for a friendly chat and we’ll advise how a payroll umbrella company can be of benefit to you.