IR35 is designed to close a loophole in the tax system where workers could use the setup of a limited company structure in order to pay less tax. Where, despite a contract being with a limited company, the reality is more like an employer-employee relationship, the worker should be taxed as an employee. This is referred to as a ‘deemed employee’ or an ‘Inside IR35 contract’.
The IR35 legislation looks to identify ‘deemed employees’ and ensure they are taxed correctly, however IR35 can impact those operating genuinely through a limited company structure due to the subjective nature of the legislation and clients taking a risk-averse approach.
It impacts UK personal service companies (PSCs) – a term which has not been clearly defined by HMRC but, broadly speaking, refers to limited companies with a sole or majority director/shareholder who provides the services of the company.
Since its inception in 2000, contract workers working through PSCs have decided their own tax status. In 2017, HMRC enforced a change in the public sector meaning that “end-clients” became responsible for deciding tax status for contractors operating through PSCs. This meant that most contractors operating in the public sector were required to pay significantly more tax. This is planned to be extended to the Private Sector in April 2020, causing major disruption to the UK contractor market and project delivery.
To help you understand if your role is deemed “Inside" or "Outside" IR35 for tax purposes, HMRC have created a “Check Employment Status For Tax (CEST)” tool.
For more information on IR35 and the potential options available, McGregor Boyall have created a suite of guidance documents below:
If you would like more information click here to contact our dedicated IR35 Team.
McGregor Boyall are committed to support strategic project delivery through a flexible and specialist workforce. To understand how we can continue to attract and deploy the best available specialist project teams, whilst remaining compliantly outside of IR35, explore the links above or get in touch with our specialist Project Solutions Team.