IR35 Ask an Expert – your questions answered Part 1

 

We think it’s fair to say that the realisation of last month’s changes to IR35 is hitting home for contractors, agencies and public sector bodies as they adjust to new rules and processes.

We have analysed the most searched terms around IR35 and arrived at the real questions people affected by the legislation are asking. In this series of articles, we put those questions to our experts. In Part 1 we’re going back to basics:

What is IR35?
IR35 is a set of rules put in place by HMRC to tackle the “disguised employment” of contractors supplying their services to clients via an intermediary, such as a limited company (Personal Service Company or PSC). That is to say, workers who would (in the eyes of HMRC) be classed as employees, if you removed the fact they have a limited company.

What does IR35 stand for?
While IR35 is properly known as the “intermediaries legislation”, it is more commonly referred to by the consecutively numbered Inland Revenue (now HMRC) budget press release number 35 in which it was announced in 1999.

What are the 2017 changes to IR35?
On 6th April 2017, two key changes to the way IR35 is applied in the public sector were introduced:

The responsibility for making the IR35 status decision transferred from the individual operating the PSC to the Public Sector Body they are working for.

The responsibility for making the necessary deductions is now that of the “Fee Payer”, ie. the party paying the PSC. This could be an agency, Employment Intermediary or Public Sector Body.

What are the rules for IR35 in the public sector?
For public sector contracts, IR35 is assessed by the client (Public Sector Body), rather than the contractor.
If the client decides that the contract is within IR35, then the party paying the PSC – the “Fee Payer” must tax the contractor at source, through the Real Time Information (RTI) system, exactly like an employee.

What does it mean if I am inside IR35?
If your contract is assessed as being inside IR35, it effectively means that your relationship with your agency or end client would be one of employment were it not for the fact that you are providing your services through a limited company.

If it is determined that your contract falls within IR35, it means that you are deemed as an employee for the purposes of tax and NIC but not employment law. If you are working in the public sector your agency or end client will deduct the appropriate level of tax and NIC before they pay you limited company.

Got a question? Tell us and we’ll ensure it is covered in the next Ask an Expert post