If you’re new to contracting, or you’re thinking about taking the leap, it’s essential that you understand the rules and regulations about tax. That includes the rules about off-payroll working, known as IR35.
We’ll be more than happy to talk to you about becoming a contractor, or about any particular opportunities we have right now. But, before you make any decisions about your tax affairs or about setting up a private service company (PSC), we’d recommend that you speak to a qualified accountant.
IR35 is tax legislation designed to combat tax avoidance, where a worker is contracted through an intermediary but would otherwise be an employee – therefore paying tax and national insurance.
So, if the assignment you’re working on is deemed to be ‘inside IR35’, HMRC sees you as an employee, so your tax and NI needs to be deducted from your fees by the ‘fee payer’ – i.e. an agency like Be-IT.
But, if the assignment is ‘outside IR35’, you can manage your taxes through the PSC – with the chance to operate more efficiently.
There are various criteria to determine your IR35 status – it’s not straightforward. This includes the length and frequency of your service with the company, the nature of your responsibilities, who manages your work and how you’re paid – among others.
Broadly, these are designed to separate out the kind of role a direct employee would have from what an independent contractor working under a PSC would do.
It’s down to the client to determine your IR35 status (using an online tool called CEST). If they don’t do this, or get it wrong, they will be liable for the unpaid tax and NI.
When you’re looking for an assignment, you might see some that are inside IR35 and others that aren’t. As well as offering different levels of fee – to account for the tax and NI – the nature and demands of the role will be different.
Need more info? Check out the government guidance here.