Should You Be Worried About IR35?
If you provide your services to clients through your own limited company or another intermediary, you might be wondering if IR35 applies to you. The rules around IR35 and off-payroll working can seem complicated, but they’re important to understand.
In simple terms, IR35 and off-payroll working aim to make sure you’re paying the right amount of tax and National Insurance, especially if you would be considered an employee if you were working directly for your client. However, who is responsible for applying the rules differs depending on your situation.
Let’s break it down.
IR35 vs. Off-Payroll Working: What’s the Difference?
The rules that apply to you depend on the size and type of your end client. Here’s how it works:
- Off-payroll working: If you’re providing services to a medium or large-sized private sector organisation, or to a public sector client, then they need to decide if you would be an employee if you worked directly for them. If they think you would be, they must deduct tax and National Insurance before paying you. In this case, the responsibility lies with the end client, not you or your company.
- IR35: If your client is a small private sector organisation, it’s up to you – or more specifically, your personal service company – to assess whether IR35 applies. In this scenario, you need to decide if you would be classed as an employee if you were working directly for the client.
How Do I Know Which Rules Apply?
To figure out whether the off-payroll working rules apply or if you need to worry about IR35, you first need to understand the size of your end client.
A small private sector organisation is defined as one that meets two or more of the following criteria:
- Annual turnover of £10.2 million or less
- Balance sheet total of £5.1 million or less
- 50 employees or fewer
If your client is larger than this, the off-payroll working rules apply, and the responsibility shifts to them. If your client is smaller, you need to consider IR35 yourself. If you’re unsure, check with your client to confirm their size.
Complying with IR35
If your client is a small private sector organisation, you’ll need to check whether the engagement falls under IR35. The key question is: Would you be considered an employee if you provided your services directly to the client?
HMRC offers a handy tool to help you figure this out – the Check Employment Status for Tax (CEST) tool. If the tool says ‘yes’, then IR35 applies, and you’ll need to:
- Calculate your deemed employment payment – This is the amount you’d be taxed on as if you were an employee.
- Report and pay – You need to report the payment and pay the necessary tax and National Insurance by 5 April, at the end of the tax year.
Need Help?
IR35 can be tricky to navigate, and getting it wrong can have costly consequences. If you’re unsure whether you fall under IR35 or off-payroll working, or if you need help with your tax compliance, we’re here to help.
Contact Jon and the team at Jon Davies Accountants today, and let’s make sure you’re on the right side of the rules!
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