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IR35

IR35 refers to the UK tax legislation designed to tax ‘disguised employment’ at rates similar to normal full-time employment. The legislation applies where a ‘disguised employee’ is a worker who receives payment from a client via an intermediary, such as a Limited Company, but has a relationship with their client that is akin to that of direct employment by the client. The legislation applies to each assignment/contract independently rather than to the actual company (intermediary) itself. However, the aim of IR35 is to stop a worker from establishing a Limited Company via which they would work effectively as an employee of an end client but enjoy tax savings associated with running a company.

For those engaged in the private sector, as a director of a Limited Company, you must ensure compliance with all relevant legislation, and take responsibility for determining whether IR35 applies for each contract and therefore what amounts must be paid as salary payments to ensure the appropriate PAYE and National Insurance Contributions (NICS) are deducted.

For those engaged in the public sector, new measures in the IR35 legislation, effective from the 6th of April 2017, shift the responsibility for determining the status of an engagement, assignment or contract from the worker to the end-client (i.e. the public sector body), where a Personal Service Company (PSC) is involved. Where it is determined that the new IR35 rules apply, the “fee-payer” (e.g. agency, or third party) that makes payment to a PSC becomes responsible for deducting and paying associated employment taxes and National Insurance contributions.

Regardless of whether your engagement is in the public or private sector, the myPSC software requires you to select when a contract is IR35 Compliant (falls outside IR35). If an individual contract falls within IR35, then all payments received (income earned) under that contract will be classified as ‘employment payments’. myPSC will then ensure that , after accounting for any allowable business expenses, the total amount required is paid to you as a salary and therefore subject to any applicable PAYE and NICs.

HMRC have published a new online IR35 interactive tool to assist with an IR35 assessment by answering a few questions. Using this tool is optional but the result from this online tool will be provided in real-time and give the definitive HMRC view on the position. We recommend using the option provided to save/print your results for future reference.

The tool can be found here: https://www.tax.service.gov.uk/check-employment-status-for-tax/setup

Guidance for the tool can be found here: https://www.gov.uk/guidance/check-employment-status-for-tax

E-mail us at info@my-psc.com or Call us on 0800 0217 186