Off Payroll Working (IR35)

HMRC refer to the IR35 rules as ‘off-payroll working’ to imply that every freelance worker should be paid through the payroll, which is certainly not the case.

For public sector contracts it is the engager who decides whether the IR35 rules apply to freelance contractors. This will also be the case for contracts with large and medium-sized private sector engagers from 6 April 2020. Smaller engagers (ie those with less than £10.2m turnover, less than £5.1m value on their balance sheet, or fewer than 50 employees) can continue to leave the IR35 question to the worker.

If IR35 does apply, income tax and employee’s NIC must be deducted from the fee paid to the freelance contractor, but the fee-payer must pay employer’s NIC to HMRC separately. In a chain with a larger engager the fee-payer will normally be the employment agency which pays the worker’s personal service company.

The engager should consider the circumstances of each contractor separately and issue each contracted worker with a decision on IR35. The worker can object to that decision, giving the engager 45 days to respond, but in the meantime the engager must continue to apply the IR35 rules in line with its decision. The worker can choose to leave the contract and seek work elsewhere or request a higher gross fee to compensate for the tax and NIC which will be deducted from that fee.

The new IR35 processes provide many opportunities for confusion and miscommunication. We can help you decide how the rules apply to you.

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