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At MERJE, we work closely with Contractors and Clients to ensure a seamless transition between contract roles. In order to provide this level of service and to assist with any queries which may arise during the recruitment process, we keep updated with the changing legislation that may impact the UK Contractor market – you can see some of the changes and trends that we have identified in this recent article.
One significant upcoming tax legislation change that we are frequently asked about, and which Contractors and employers of Contractors should be aware of, is the Off-Payroll tax – also known as IR35.
What is IR35?
IR35 tax rules have existed since 2000 in an effort to reduce tax evasion, however the IR35 Off-Payroll working rules are a newer piece of legislation that has been administered in the public sector since 2017 and will be rolled out to medium and large private sector organisations in April 2020.
The main focus of this legislation is whether a self-employed Contractor should be considered as such, or should instead be considered an ‘employee’ of the organisation they are working at. The tax implication of this situation is that if a Contractor’s role at an organisation is actually more like an employee – known as a ‘disguised employee’ – their Income Tax and National Insurance should be calculated and deducted by the client prior to pay once IR35 is implemented. This status is described as ‘inside IR35’.
If a Contractor is deemed ‘outside IR35’, then it means their tax status is correct in a self-employed capacity and they are able to continue paying themselves in the most tax-efficient way, either through a limited company or via a Professional Services ‘umbrella’ company.
How to determine IR35 status
There are three key areas which can help identify if a Contractor role is inside or outside IR35:
Personal Services – is the service provided a personal or business-to-business service?
Control – how much of the service you provide is controlled by the client?
Mutuality of Obligation – are you obligated to accept paid work from the client?
These are summaries of the three key tests, and there are a number of other factors that can be taken into account, such as financial risk and the equipment needed for the role. Understanding IR35 status can be complicated, so it is advised that Contractors who are in a role that will last beyond the implementation of IR35 examine their contracts and work practices, as well as discuss with their client what their status is and seek external advice where needed.
The best way to determine your Tax status is by completing the CEST test – whilst this does not provide a definitive answer it should give you a good indicator of your likely status.
For more details on how to identify IR35 status, please read the guidance from HM Revenue & Customs here.
IR35 at MERJE
The contract roles that we recruit for at MERJE will be fully compliant with IR35. We work closely with our Clients and Candidates to ensure that we provide a transparent service and assist any queries that a Contractor may have about the status of the individual roles that we are recruiting for.
Whilst the decision of whether individual vacancies are inside or outside of IR35 remains with our Clients, when roles fall inside IR35 we are able to recommend IR35-compliant Professional Services companies that can support with payments and umbrella companies, ensuring professional Contractors are able to remain in work and Clients continue to be able to access specialist skills and interim support.
If you wish to discuss your next Contractor role, or have a Contractor recruitment need at your organisation, please get in touch.
