IR35
Also known as “the off-payroll working rules”.
What are they?
What do they mean for you?
For the avoidance of doubt, working through an umbrella company like Laboris means that the IR35 rules won’t affect you.
What is IR35?
IR35, also known as the off-payroll working rules, is a piece of tax legislation first introduced in April 2000. The purpose of IR35 was ensure that contractors and freelancers who have an “employment relationship” with their clients pay the correct amount in PAYE taxes.
Umbrella companies started to appear following the arrival of IR35.
Prior to the introduction of IR35, many contractors operated through their own Limited Companies and made significant tax and national insurance savings in the process.
Changes to IR35?
Initially, it was the responsibility of the contractor to decide whether or not they were classed as ‘inside IR35’ or not.
However, it was believed that this system was being abused by contractors paying themselves with a mixture of salary and dividends, even though they should be considered ‘inside IR35’.
As a result, changes to the rules were brought in that shifted the onus for determining if a contractor was ‘inside’ or ‘outside’ to the end client.
This came into effect in April 2017 for public sector employers; it was supposed to extend to private sector employers in April 2020 but this was deferred for a year due to the coronavirus pandemic.
If You’re Inside IR35
It indicates you are not truly independent and more like any other PAYE employee of the end-client.
HMRC must be paid all the relevant deductions that both employers and employees are expected to make, including taxes and other contributions.
In or Out; or Just Unsure
For the avoidance of doubt, working through an umbrella company like Laboris means that the IR35 rules won’t affect you.
If You’re Outside IR35
You are seen as a truly independent and have the responsibility of ensuring that you are paying the right amount of national insurance and tax on the money that you receive for your work.
You are also free to consider other legitimate pay arrangements and not subject to PAYE by the contracted employer.
Tax avoidance schemes
Some more dubious “umbrella companies” offer upwards of 90% of your pay. While it may sound very tempting to keep more of your hard-earned money, but like many things that sound too good to be true – it’s not worth it.
HMRC continues in their efforts to catch tax avoidance schemes, and those who engage with them.
Tax avoidance schemes that help the contractor pay less tax and contributions than they can be identified by HMRC as being dishonest and end up under investigation. Even if the tax avoidance scheme disappears and HMRC struggle to find the people behind the company, it won’t be as hard to find those who have engaged with them.
“Loan Charge” legislation gives HMRC the power to retrospectively reclaim underpaid tax. A contractor who has used such a scheme could be punished well into the future with a life-changing fine.
If you purposely want to avoid tax – you are looking in the wrong place; Laboris has the contractor’s best interests at heart, and only provides compliant, responsible payroll services.
Calculate Your Salary
Let us know what your hourly or daily contract rate is and we will give you an idea of how much pay you’ll receive: