Inside IR35? Here's Everything You Need to Know
What is IR35?
IR35 is also known as the ‘off-payroll working rules’. It is a tax law that prevents contractors benefitting from ‘disguised employment’. A disguised employee is an individual who works in the same way as an employee. However, they operate through their own Limited Company. Pre-IR35 reforms, this was done to gain an unfair tax advantage. IR35 legislation assesses whether contractors in both the public and private sectors are independent or should instead be classified – and taxed – as regular employees.
The IR35 landscape has undergone a significant transformation. There were substantial reforms in both the public sector (April 2017) and private sector (April 2021). These changes shifted the responsibility of determining the status from the contractor to the client.
The implications of these reforms have significantly shaped the contracting landscape. Danbro Umbrella are specialists in the legislation – and its impact on contractors like you. So, we’re committed to offering you up-to-date, comprehensive guidance to ensure you stay informed and compliant.
Inside IR35 vs Outside IR35
Your contract’s IR35 status will determine your tax obligations. Being considered inside IR35 means your contract is deemed as employment. So, you are therefore liable for Income Tax and National Insurance Contributions (NICs). Conversely, being ‘outside’ IR35 implies that you’re recognised as an independent limited company. As such, you should be taxed accordingly.
It’s important to note that being inside IR35 or outside IR35 depends on the specifics of your working arrangement. It’s not just about what’s written in your contract. HMRC will assess the nature of your working relationship to determine your IR35 status.
Let’s take a look at some of the factors they consider…
What is Inside IR35?
- Supervision, Direction, and Control. Your end client has significant control over how, when, and where your work is completed.
- Mutuality of Obligation. Your end client is obliged to provide work, and you are obliged to accept it.
- Personal Service. You must personally carry out the work and cannot send a substitute.
- Part of the Team. You are essentially ‘integrated’ into the client’s organisation. You attend company meetings and use company equipment.
- Financial Risk. You bear little to no financial risk from the arrangement, being treated similarly to an employee in terms of payment structure.
- Employee Benefits. You receive benefits similar to those of an employee, such as paid leave or pension enrolment.
What is Outside IR35?
- Right of Substitution. You can send someone else to do the work in your place.
- Control. You have autonomy over how, where and even when your work is completed. You are not subject to supervision or control by your client.
- No Mutuality of Obligation. Once a project is completed, there is no obligation on your client to offer more work. Nor on you to accept it.
- Financial Risk. You bear greater financial risk. For example, correcting unsatisfactory work at your own cost.
- You are a Business. You operate as a ‘legitimate’ business. You may have your own branding, website and, crucially, other clients.
- Provision of Equipment. You often use your own equipment to complete the assignment.
Understand Your Employment Status
It’s essential to understand your contract’s status and its implications on your financial standing. Being inside IR35 can lead to higher tax liabilities and reduced net income. This is where umbrella companies come in.
By joining an umbrella company like Danbro Umbrella, you’ll become an employee. This setup places you outside the scope of IR35, as we handle your tax and NICs through PAYE.
We offer a straightforward solution to the IR35 conundrum. This allows you to focus on your work without handling the complexities of tax legislation. Not to mention the fear of falling foul of IR35.
So, get in touch today, and see what Danbro Umbrella can do for you.
Additional Information on IR35 can be found here: Understanding off-payroll working (IR35) – GOV.UK (www.gov.uk)