IR35 help…

[ir35help]

I need to make a decision about doing some contracting work and I literally have no idea about IR35…

Can anyone help? So if I work inside ir35 does this mean I pay more tax? If I work outside I need an account to do my tax and ni?

So if I said I was contracting at say £30 per hour for 37 hours a week my weekly gross pay would be £1100 per week how the heck do I work out my tax and ni?

im starting to think this is a lot more hassle than it’s worth

IR35 applies if you work through a limited company, there's another test if you're a sole trader and you just invoice in your own name - here is Government guidance - www.gov.uk/employment-status/selfemployed-contractor

A lot of people don't understand the difference though and apply it incorrectly.

If you're a sole trader it's relatively easy to do your own accounts, although you may need an accountants involvement if you need proof of income at any stage.

So I could be a sole trader?

This is so confusing!

The role would be classed as inside ir35 and I have literally no idea what this means

I’m just going round and round in circles trying to work it out I need an idiots guide

If you're inside IR35 and that determination has been made then you pay tax as if an employee. So that's same income tax and NI rate as an employee despite not being one. This is not a good position as you still have all your self employed overheads.

I'd expect your contract to be at a good rate to offset the additional costs if the client has determined you're in IR35.

My H refuses work inside IR 35. He wants to contract "properly"

Ir35 would apply, potentially, if you have your own limited company. Are they expecting you to set one up?

Otherwise, your employment status is a mater of facts. There are several different "badges of employment" and once all these are applied (it is important to look at the whole picture, not one or two) then on balance it will be decided if you are self employed or employed.

If you are self employed you pay income tax on your profits and you pay class 2 and 4 nic. Employed - taxed through paye and class 1 nic at source.

If they are saying it is caught under ir35 that sounds like employment. But many prefer to try and say it's self employment as it's cheaper for the company.

I would ask them the question straight out and see what they say

Sorry the figures I used were hypothetical, the daily rate is very high (compared to what I do now) and as for over heads it’s a hybrid role where I would be in the office 2 x a week and home the rest of it.

It’s all a tad confusing as I’ve always been employed by a company but this opportunity seems too good to pass up without some serious consideration

There was no mention of setting up a company

There are tax advice companies who can ensure the contract you have puts you outside of IR35. Markel tax is one I’ve used before

If it's pretty much a full-time role, and you're not contracted to other companies, that may indicate it's more likely to be employed and self-employed, if you go to the government link that I posted up above, there is a link on that page that points you to the tests that are used. Other things that you might look at are whether you use your own equipment, how much flexibility there is for you to perform the work, and whether you can substitute somebody else if you're not available.

The difference with IR 35, which applies to limited companies, is that there is more of an onus on the company that is contracting with you to make the right decision, so there is more of a risk for them, whereas with self-employment as a sole trader it's you that takes the main risk. That's why companies are more worried about IR 35. It may be though that they just contract with everybody on PAYE.

If the job is within IR35 then bear in mind that you won't just be paying your employee tax and NI, but also employers tax and NI. You should be able to find an online calculator that will tell your take home pay and you can decide if it's worth it. Lots of contractors within IR35 use an umbrella company who do all the payroll stuff for a small %.

If your "client"(employer) is a larger business then the decision about whether you are in or outside IR35 falls to them. It's them that takes the hit with HMRC if they've got it wrong, so from that perspective it's good that they seem to have made the decision for you.

As others have said, it's "bad" from the side that you'll be taxed as if you're an employee, but you won't get a pension or paid holiday leave like you would be if you were. That said, it sounds like the higher rate compensates against this.

If you are inside IR35, do not set up a limited company. It's too bloody complicated with you being taxed personally on company money. Only set up a company if you're deemed outside IR35 as this then gives you the flexibility to minimise your tax liability by taking a mixture of salary and dividends, rather than full salary.

You will need to register as self employed still and submit an annual tax return. If you have any other costs, such as accountancy fees or indemnity insurance, you can use these to reduce your "profit" for the year and possibly reclaim some of the tax back that they'll deduct from your earnings.

I’ve done a quick calculation and it’s not as much as I’d expected it to be, I’d lose a lot of money in tax/ni and the employer contributions as well, I’d need up the day rate another 30% to make it more viable.

Ah well the dream was nice and all that but I don’t think contracting will work for me

IT contractor here; this is how it worked for me and I've done both.

Inside/outside IR35 is a decision taken by the client/ aka employer; so if they are telling you it is Inside IR35, they will guide you towards their recommended umbrella company and you become an employee of the umbrella company.

Outside IR35 - I needed to have a limited company set up through which I was paid via an Agency. I could not work as an IT contractor as a sole trader. I paid corporation tax once a year and then had to do self - assessment for tax on dividends from my company. I have an accountant who files my annual accounts, did my self assessment and any Companies House filings.

Inside IR35 - working through a recommended umbrella company, who in effect become your employer. National Insurance and tax taken at source, so if paid weekly, taken weekly etc. They may enroll you in their pension scheme after 3 months - but you can opt out. You have to be aware of what your tax code is/should be. You will not need your own company in this scenario.

There are plenty of online calculators so you should be able to make an informed decision.

Please note - you don't need to pay the employer's NI - your employer pays that.

i.e. if you're paid £400 a day and work 20 days in a month, you'll be paid £8,000 and have employee's NI and income tax deducted from it. The amount you receive would be no better or worse than if you were an employee earning that amount.

The employer will pay employer's NI on the £8,000 (c. £1,090) so their total cost of employing you is £9,090.