IR35 & The Off-Payroll Tax – All You Need To Know

IR35 And Off Payroll

 

What Is IR35 & The New Off-Payroll Tax?

IR35 is a term used to describe a set of tax regulations that are designed to tackle tax avoidance by workers and their employers. It relates to companies hiring freelance workers or contractors who charge the company in question for services supplied through an intermediary, usually a limited company or an agency.

The IR35 determines whether these contractors are in fact employees who essentially ‘work’ for the company or if they are providing their services illegally by avoiding tax such as income tax and national insurance contributions. These workers are called ‘deemed employees’, who the IR35 is designed to expose due to avoidance of tax payments by going through a limited company.

IR35 gained its name from the original press released published by the then Inland Revenue (now HMRC) announcing its creation. It came into effect in April 2000 and has since then been heavily criticised across the board because of its poor implementation, unnecessary costs and the fact it can be easily dodged.

On April 1st 2021, the new Off-Payroll Tax scheme will be enforced to medium and large-sized private sector clients, as well as the public sector which has already followed these rules since April 2017. This piece of legislation is also confusingly referred to as IR35, yet instead of the previous IR35 regulations, companies will now be required assess a contractor’s status of employment. As well as this, companies will also be required to pay employment taxes on top of fees paid to the contractor.

The Off-Payroll working rules applies to all public sector clients and private sector companies that meet 2 or more of the following conditions:

  • You have an annual turnover of more than £10.2 million.
  • You have a balance sheet total of more than £5.1 million.
  • You have more than 50 employees.

Who Does IR35 & The New Off-Payroll Tax Affect?

The new IR35 regulations affect both contractors and freelancers as well as companies. If you are a contractor, freelancer, consultant or interim who is in ‘business on your own account’ (a limited company that also uses an intermediatory to provide a service) then you have nothing to worry about at all. If, on the other hand, you are a freelancer who is employed by the company to essentially ‘work’ for that company on a freelance basis, then the Off-Payroll Tax scheme will apply.

Companies will therefore have to determine whether a client is in fact a ‘worker’ or if they provide a service on an intermittent or irregular basis and therefore aren’t under employment.

The IR35 regulations will also affect agencies who provide freelance or contractor workers to a specific client, requiring them to owe large sums of money to HMRC due to the way freelancers and contractors will be taxed.

Why Are The Government Bringing In The New Off-Payroll Tax As Legislation?

By enforcing the Off-Payroll Tax scheme, the government are by their own admission declaring previous IR35 regulations as unenforceable. The act of ‘deemed employment’ or ‘disguised employment’ accrues to millions of pounds of avoided taxes, including the 13.8% of National Insurance contributions or the Apprenticeship Levy of 0.5% which companies have to account for.

Deemed employment also allows companies and employers to avoid providing employment rights or benefits, such as statutory sick pay or holiday pay, to workers. Many businesses hire workers through a personal services company or limited company, thereby opening the door for mismanagement of taxes and basic worker’s rights.

The new IR35 and Off-Payroll Tax regulations will help cover workers from being poorly treated, whilst also bringing in an extra millions of pounds revenue for HMRC, which is essential during the economic crisis due to the pandemic. 

How To Comply With IR35 Regulations?

As stated, if you’re a genuine freelancer or contractor who is set up as a limited company and for multiple businesses then you’re fine. Due to being set up as a limited company however, you will be subject to Corporation Tax which HMRC state you must do specific things to work out, pay and report your tax including:

  • Register for Corporation Tax when you start doing business or restart a dormant business. Unincorporated associations must write to HMRC.
  • Keep accounting records and prepare a Company Tax Return to work out how much Corporation Tax to pay.
  • Pay Corporation Tax or report if you have nothing to pay by your deadline – this is usually 9 months and 1 day after the end of your ‘accounting period’.
  • File your Company Tax Return by your deadline – this is usually 12 months after the end of your accounting period.

Taxable profits for Corporation Tax include the money your company or association makes from:

  • Doing business (‘trading profits’)
  • Investments
  • Selling assets for more than they cost (‘chargeable gains’)

Can IR35 Regulations Be Avoided?

The short answer to this is no. There is no way to avoid the IR35 regulations legally. Many companies who employ numerous freelancers have already taken the decision to place all of their contractor and freelance staff on fixed term employment contracts. This, whilst protecting employment rights and jobs in general, also provides a hefty sum for employers to cover in tax costs.

Companies however that hire self-employed (sole traders) are not affected by IR35 regulations. This of course is a risky move and doesn’t alleviate the risk of a HMRC investigation which could cost businesses large sums of time and money. From 6 April 2021 companies must tell the worker and the agency, or other organisation that are contract, the determination of employment status. This is to be done whether the determination shows that the Off-Payroll working rules apply or not. Reasons must be also provided for the determination.

If you are a company or an individual who is still unsure how to determine whether a worker is employed or self-employed for tax purposes, then the Check Employment Status For Tax government resource tool should help resolve this.

 

We hope this has outlined to you exactly what IR35 and the new Off-Payroll Tax scheme is and whether you will be affected. If you require any more information on IR35 regulations or anything accounting related for that matter, please don’t hesitate to get in contact with us at Nordens where one of our trusted advisors would be happy talking you through your query.

 
Beyond Accountancy

At Nordens, we're more than just accountants - we're business experts who can help you achieve your biggest goals.

Nordens Strategic

Our specialist strategic division at Nordens boasts some of the leading entrepreneurial business minds in the country. We cater towards delivering consistent success stories, whilst helping businesses achieve above and beyond their initial goals.

Through highly-tailored guidance, coaching and advice, Nordens Strategic are able to define exactly how your business can reach new levels of success.

Regardless of how you define ‘success’ for your business, our strategic service is guaranteed to bring about real and lasting change. By partnering with some of the UK’s top business coaches, we’ll steer you along the path to a greater future.

Accounting 2 You

Every business, no matter how big or small, needs to make the right decisions, and how to best manage your accounts can put huge question marks over your business. Accounting2You is here to take that pressure off and provide you with all the answers you need.

Our bookkeeping branch offers a fully inclusive, comprehensive service that you can trust. Since 2005, our specialist bookkeepers have been successfully managing the accounting of both individuals and small businesses.

With experts in payroll analysis, credit control and financial recording, Accounting2You will lead your business efficiently, and with real purpose, towards a prosperous future.

Voted as EXCELLENT - 9.9 out of 10 based on 167 reviews

<
Chris Dyer

Director - Metro Bank

Nordens are always very easy to deal with and extremely professional and efficient. I would have no hesitation in recommending them to my clients for their accountancy needs, no matter how complex they may be.

Read more reviews on Trust Pilot

Jamie Brown

Co-Founder - Chicmi Limited

Very good to work with - the team go above and beyond to make the accounts easy and efficient. They're all super friendly and a joy to work with.

Read more reviews on Trust Pilot

Simon Rose

Director - Rose Opticians

I have been using Nordens Chartered Accountants for 5 years and very happy with the service provided. All members of the team are very knowledgeable and have a wealth of experience which has proved very beneficial to my organisation

Read more reviews on Trust Pilot

Rebecca Bossick

Founder & Director - Physio LDN

Very easy to contact and put me in touch with the right person whenever I need to ask any questions. Extremely knowledgeable and can help me manage my various businesses whenever I need.

Read more reviews on Trust Pilot

James Aconley

Principal - Pauline Quirke Academy

Great accountants, always available to offer advice. The team have transformed my business.

Read more reviews on Trust Pilot

Christopher Wilce

Founder - Dataphone

Having worked with Nordens over the last 5 years, not only to look after my annual accounts but they have also provided outstanding professional advice. They have guided me through a Company share buyback with clear and objective advice. We have also been using Nordens strategic services for a couple of years, which has helped bring about significant improvements that exceeded my expectations. With experience of working with several local accountants over my 29 years in business, I’m very pleased with the service I have received from Nordens.

Read more reviews on Trust Pilot

Dave Hodges

Director - Linekers

Trusted our business with Nordens for over 10 years now and watched the company grow into the successful innovative business it has become today. Deservedly so. Every aspect of financial advice we need is always given promptly and with a smile. We have total confidence in all aspects of advice Nordens give. If you are looking for accountants, its a no brainer!

Read more reviews on Trust Pilot

Tony Charles

Founder - Foundation Sports Limited

A fantastic, modern, vibrant firm that care about the clients and their staff in abundance. It is rare to find an Accountancy firm with such vibrance and focus and relationships. It is no wonder they win award after award in their field.

Read more reviews on Trust Pilot

Peter Horlock

Managing Director - Prime Time Boilers

I have been with Nordens for many years now and they are a great accountants.

Read more reviews on Trust Pilot

Simon Cushing

Founder - Vivid Finishes

We have used Nordens for the last 5 years and have had a great service throughout. The guys are very passionate about what they do and have played a part in the growth of our company, highly recommended.

Read more reviews on Trust Pilot

Andrew Martin

Managing Director - AMD Interior Architecture

Great Service at Nordens from a friendly very approachable team Particularly Kirsty Willis and Joe Sword who have been helping us since we started the business in 2016.

Read more reviews on Trust Pilot

James Robinson

Director - Forma London

Nordens provide a first class service. We moved to Nordens last year and have been impressed with the level of service provided. Keep up the good work!

Read more reviews on Trust Pilot

>
Latest News

We've always got our ears to the ground when it comes to interesting, useful and topical information relating to business and accountancy.

An Employer Payroll Checklist…
With the end of the tax year sweeping us by, it’s more important than ever to make sure your financial and tax affairs are in order. The previous year has seen businesses struggle with the severity of the pandemic and lockdown ...
Inheritance Tax Planning –…
Inheritance Tax (IHT) is a touchy subject for many families and individuals. Once a person passes away who owns a large sum of estate, then that estate will be taxed by the government in order to redistribute back out to the st...
Nordens TV

We love making videos that break down convoluted accountancy jargon into plain-talking, actionable and accessible facts.

Live Webinar – Time…
Watch our latest LIVE webinar titled ‘Time To Revive' that was held on Wednesday 3rd February 2021 at 4pm GMT hosted by our CEO Mitch Hahn. Last year was tough for all of us. Now is the time to see what 2021 brings and how we c...
Our Christmas Message To…
Merry Christmas to all!   Here we have Mitch Hahn, CEO of Nordens Chartered Accountants delivering our Christmas message to you. Click the video link or read the full transcript below.   As we enter the ho...
  Why I Founded Nordens
Accounting 2 You

In November 2002, having sold our other business interests off earlier in the year, I decided to set up Nordens Chartered Accountants. The easy part was knowing how to do it, as I had established and built a smaller practice a few years earlier. The difficult part, for me, was not following the traditional accountancy path. Having run businesses, both successfully and unsuccessfully, I wanted to help business owners resolve their short term problems and work with them to achieve their longer term goals. Business has always been my interest and I love that I can help business owners achieve what seems like the impossible every single working day.

Mark Norden Signature

Mark Norden
Founder

We're Professionally Certified

Our limited company accountants have a range of qualifications from The Institute Of Chartered Accountants (ICAEW) to the Association of Chartered Certified Accountants (ACCA). We worry about the bye-laws, regulations and ethical guidelines of the ACCA so you don’t have to! That makes us an ACCA-accredited employer as well as a Professional Passport-accredited one!