IR35, also known as Intermediaries Legislation or Off Payroll Working Legislation is a tax law that seeks to remove any tax advantages gained by disguising employment as self employment. IR35 was introduced into UK law in 2000 following a growing trend of workers leaving full time employment to start working on temporary contracts as self employed contractors – saving them and their ex employers tax and national insurance.
Under the IR35 rules your assignment is assessed to be inside IR35 if it points towards employment and you are effectively a disguised employee and should pay broadly the same tax as a regular PAYE employee. However the IR35 rules are confusing and leave many contractors struggling to gain the level of knowledge to really understand IR35 and be confident that the way they offer their services and are remunerated doesn’t fall foul of the tax legislation.
Looking at the level of control you have over how you work, what you do, whether or not you are closely managed by your client. The more control you have in these areas signals a greater degree of self employment.
If you were unable to carry out your assignment are you able to send somebody in your place? If you can then you are signaling the right of substitution and being genuinely in business on your own account.
Are you obliged to accept further work and is your client under an obligation to continue to offer you work? If this is the case then it signals that you could be viewed as an employee.
For many contractors, working through an umbrella company takes away the uncertainty caused by IR35 and how HMRC can apply it to your situation. Following the changes to the Off Payroll rules in the public and private sector, there has been an ever increasing number of contractors working through umbrella companies who avoid the uncertainty of falling foul of IR35.
Where there is an increase of demand for a solution then there will be a surfeit of supply. The number of umbrella companies that have sprung up in the last few years to accommodate the needs of temporary workers has increased to a level that older more established umbrellas have clubbed together to form associations and bring in accreditations. Some agencies rely on such accreditation whereas others believe that the choice and decision should be left with individuals.
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