Here you can find the answers to our most frequently asked questions about IR35.
Please note: Information for the following questions has been taken from our affiliated Umbrella Company, Paystream and the IPSE.
What is IR35?
IR35 refers to the United Kingdom's anti-avoidance tax legislation designed to tax "disguised employment" at a rate similar to employment.
What are the changes to IR35?
The government has announced changes from 6th April in the way IR35 is administered for Personal Service Companies (PSCs) operating in the public sector. IR35 was introduced in 2000 to determine whether or not a contractor should be treated any differently than an employee, for tax and National Insurance purposes.
The responsibility for determining your IR35 status has to date, rested with the contractor but from 6th April this moves to the company paying the PSC, whether it is the recruitment agency, public sector body or someone else. We expect the vast majority of contractors will be viewed as an employee under these changes with normal taxes and national insurance deductions made and paid to HMRC.
What options are available for Interim Manager whose assignment is caught by IR35?
What are the benefits of using an umbrella?
We work with Paystream, who provide the following key benefits:
If eligible, you will continue to be able to claim back allowable business expenses via their online portal, smart phone or post.
You will continue to receive your wage within the same timescales.
Continuous employment helps with mortgage or loan applications, being on the correct tax code and only having one pension pot.
Statutory benefits access to for example SMP and SSP.
Online portal makes it easy to join, process timesheets and view payslips.
Mobile app for contractors to access their holiday pots, view their latest payment details or check the status of payments.
Tax relief on allowable business expenses these expenses exclude home to work travel and subsistence in most cases unless the contractor isn't subject to supervision, direction or control.
Inclusive insurance - £10m employers liability, £5m public liability and £5m professional indemnity insurance cover.
Peace of mind - fully compliant service with reputable provider.
Why can I not use my PSC post April 2017?
Where a Public Authority states that the role is inside IR35 there is a concern that HMRC would then look at previous years and seek to raise an assessment. Due to this contractors should consider whether or not to close their PSC.
Who pays the employee NI contributions?
The Interim Manager, because the employee is responsible for their own NI contributions.
What are the additional costs for hiring an interim post 6th April 2017?
- 13.8% NI (we won't change the first £157)
- If umbrella, £2 per day admin charge
- Usual agency margin
What is the 'Right of Substitution' and why is it important?
What is the 'Mutuality of Obligation'?
Will HMRC retrospectively investigate engagements that have now been determined to be inside IR35?
Contractors are understandably worried that if their client decides in April that IR35 should apply, does that mean HMRC will be more likely to look at the months preceding April and ask “shouldn’t IR35 have been applied to income received before then too?”
Certainly there is nothing in the legislation which prevents HMRC from doing this. Whether they actually will or not is unknown. Some contractors may feel compelled to terminate their contract because of this, after all to stay in the engagement even after the client has decided IR35 applies could be taken as agreeing with that determination. This then raises the question “why wasn’t the contractor voluntarily operating IR35 previously?”
For this reason, IPSE has asked HMRC to declare an amnesty on engagements prior to April 2017. Unfortunately HMRC has refused this request and has robustly defended its right to retrospectively investigate all engagements, including any that may transition to the new tax arrangements in April.