What exactly is IR35?

In 2017, the government and HMRC enacted legislation affecting all Limited Company contractors working in the public sector, including hospitals, schools, and transportation. The government will implement this in the private sector in 2021, and if you currently work as a Limited Company contractor in the private care/private care home sector, you will be affected.

What exactly is IR35?

IR35 is the name given to the government’s tax legislation that focuses on identifying ‘disguised employees,’ which are individuals who provide services to a client through an intermediary company, such as a Limited Company or PSC, but whose relationship with the client would be one of employment if the intermediary, such as an agency, were not present. In this case, the IR35 rules require the intermediary (agency) to deduct and pay the same taxes as a typical PAYE employee.

What does it mean to work within IR35?

Being ‘inside IR35’ means that, for tax purposes, employees are deemed to work for their end client in the same way that a permanent employee would and are thus subject to PAYE. Working within IR35 generally means that your employer (which could be an umbrella company or a recruitment agency) deducts the appropriate taxes and National Insurance contributions from your pay ‘at source,’ which means before it reaches your bank account. If you work within IR35, you must ensure that you pay the correct taxes over the course of a fiscal year. This may include making a deemed payment (for example, paying higher taxes) at the end of the fiscal year.

How is IR35 calculated?

The exact rules governing IR35 tests are fairly complicated, but the basic idea is that if someone is only doing contract work for one company and is told directly what to do by that company, they are an employee, not an independent business. As a result, they should be paid and taxed as employees, not as a Limited Company.

Who will be impacted?

This will now apply to all Ltd Co employees in all public and private sectors, not just healthcare, beginning in April 2021. As previously stated, this legislation previously only applied to the public sector, but it now applies to all.

What does it mean to work outside of IR35?

Being ‘outside IR35’ means you are considered to be operating more independently than a permanent employee. This means that you are responsible for managing your own taxes through your limited company (also known as a personal service company). Furthermore, you will be able to pay your own salary and receive the remainder of your earnings as dividends.

Could I be exempt from the law?

It is unlikely that you would be considered outside, and when this was first implemented in the public sector, the vast majority of nurses were covered by the legislation. Finally, the clients for whom you work will make the decision, but it is unlikely that if they make a mistake, they will face severe consequences.

Can I check my own status?

Yes. The HMRC has re-released a more robust CEST (Check Employment Status for Tax) tool, which is a simple online assessment that provides accurate results based on your answers. This tool has been criticised in the past for producing inaccurate results; however, improvements have been made to this tool in order to produce more accurate results. This will allow you to determine whether the role you will be performing falls within or outside of IR35.

Following discussions with our largest client groups, the majority of our clients are issuing a blanket approach on all shifts falling within IR35 due to their needs.

I thought this was just a rule in the government?

IR35 has been in place in the NHS and other public sector bodies since 2017, but it has since been decided that it will be extended to the private sector as well.

When did IR35 go into effect?

On April 6, 2021.

Can I collaborate with you via an umbrella company?

No, it does not. We recently met with one of the largest providers of Umbrella services in the UK, who confirmed that there was no real benefit to employees in our industry.

I’ve heard that some umbrella companies offer 90 percent or even 95 percent take-home pay; is this true?

If something appears to be too good to be true, it usually is. Prior to April 2016, contractors paid through an umbrella company could claim travel and subsistence expenses to offset their tax liability. However, under the SDC rules, HMRC imposed stricter measures on these types of expenses beginning in April 2016. This means that the previous benefits of being paid through an umbrella company are no longer available. In fact, because umbrella companies typically deduct a processing fee, your take-home pay is now the same or better via PAYE.

What happens if I don’t follow through?

You could face an IR35 investigation, which could result in a life-changing fine.

What exactly is an IR35 investigation?

An IR35 enquiry is a case brought forward by HMRC when a worker is discovered to be wrongfully claiming to be outside IR35 when they are, in fact, inside IR35. HMRC will go after the wrongdoer in order to recoup lost income tax and National Insurance contributions. Additional interest and a possible penalty fee may also be assessed. These charges can often amount to tens of thousands of pounds for those found guilty.

Who should I contact if I have additional questions?

Your accountant will be in the best position to provide you with additional information based on your specific circumstances, so they should consult with them if they have any further questions.