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What is IR35?  

In its simplest form IR35 is a piece of legislation that was introduced by HMRC back in April 2000. The legislation is called the ‘Intermediaries Legislation’ however it is now most known as ‘IR35’.

The intention of IR35 was to prevent individuals who are, in effect, treated like an employee but provide their services via their own PSC (personal service company) in an attempt to disguise this ‘employment’.

 

Why would a PSC operate in this way? 

Individuals do this as they may wish to avoid PAYE & NICs thus retaining more of their rate – working via your own personal service company enables you to save substantially in tax and NIC by paying profit as Dividend rather than salary.

 

Who do the rules apply to: 

  • The off-payroll working rules apply if a contractor provides their services through their own limited company (PSC) or another type of intermediary to the client (Recruitment Company / Umbrella )
  • The rules make sure that workers, who would have been an employee if they were providing their services directly to the client, pay broadly the same Income Tax and National Insurance contributions as employees.
  • The client is the organisation who is or will be receiving the services of a contractor. They may also be known as the engager, hirer or end client. The client will be responsible for determining if the off-payroll working rules apply.
  • From 6 April 2021 all public sector authorities and medium and large-sized private sector clients will be responsible for deciding if the rules apply. If IR35 applies , deductions for Tax and NI must be paid before the contractor is paid.

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