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Highlights of 2021 Spring Budget announced by Chancellor of the Exchequer Rishi Sunak
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Make a Time to Pay arrangement or pay tax by 1st April to avoid Self Assessment Late Payment Penalties
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Self-Employment Income Support Scheme (SEISS) third grant up to £7500: Applications now open
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Spending Review 2020 – National Living Wage will increase & NHS Doctors and nurses will get a pay rise.
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Inside IR35 vs outside IR35 comparison
HMRC introduced the off-payroll working rules (IR35) in 2000 to make sure that contractors who would be employees if there was no intermediary pay broadly the same tax as employees.
That means that if a contract is inside IR35, you have to pay income tax and National Insurance Contributions just like employees do. If a contract is outside IR35 it means you’re operating as a proper business. HMRC sees you as self-employed and you’re able to pay yourself in a tax-efficient way.
Your IR35 status has different implications for the tax you pay.
When you’re inside IR35 you:
- are classed as an employee for tax purposes
- need to pay income tax and National Insurance Contributions
- pay this tax by making a ‘deemed payment’ at the end of the tax year
Working out your deemed payment can be complex, so it’s best to speak to your accountant to make sure you get it right.
But if you’re a public sector contractor, your fee payer will work out and pay your tax and NICs on your behalf (as will medium-sized and larger clients for private sector contractors from April 2020).
Even though HMRC sees you as an employee for tax purposes when you’re inside IR35, you aren’t entitled to employee benefits like holiday pay and sick pay.
When you’re outside IR35 you:
- are self-employed and operate as a proper business
- are responsible for your business’s taxes
- can pay yourself in a tax-efficient way
If you’re outside IR35 you’ll be paid your fee and will be responsible for managing your business’s taxes as normal.
How do I know whether I’m inside IR35?
One way to work out whether a contract falls inside IR35 or outside IR35 is by using HMRC’s check employment status for tax tool. To use the tool HMRC says you need:
- details of the contract
- the worker’s responsibilities
- who decides what work needs doing
- who decides when, where and how the work is done
- how the worker will be paid
- if the engagement includes any corporate benefits or reimbursement for expenses.
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