IR35 background

The idea  behind IR35 legislation, is to combat a scenario where a firm hires someone as a contractor via their limited or intermediary company, but if the intermediary was not available they would be an employee. HMRC call these workers ‘deemed employees’.

IR35 can reduce the worker’s net income by up to 25%, costing the typical limited company contractor thousands of pounds in additional income tax and NICs.

Despite having been in force since April 2000, IR35 is heavily criticised by tax experts and the business community as being poorly conceived, this is why Government is replacing the original IR35 legislation with the new Off-Payroll Tax, which was initially introduced into the public sector in April 2017, and will be extended to the private sector from April 2020.

For firms that hire contractors, where the new Off-Payroll Tax needs to be considered, they should not fear the new legislation, provided they take the correct steps when hiring and engaging their contractors. The new rules introduce a different set of tax treatment, meaning that firms will now have to assess the contractors status, but, more importantly, pay employment taxes on top of the fees paid to the contractor. This new tax is now widely referred to as the "Off-Payroll Tax"