Last month we discussed the upcoming changes to Off-payroll and IR35 rules, now one month on, the rules have ‘gone live’ and we are here to summarise the new rules for the private sector and which companies are currently exempt.
What Is Off-Payroll Working and IR35?
Before we continue it is important we understand what Off-payroll and IR35 are, we have previously discussed this so we will keep it concise.
Off-payroll working is an HMRC term used for describing a group of workers that don’t fit into the conventional categories of employed or self-employed. They are workers not on a PAYE (Pay as you earn) payroll. They may be consultants, contractors or freelancers.
And IR35 tax rules is the legislation imposed to handle the tax these types of employees and employers must declare and pay.
Small Companies Are Exempt
It has been announced that small companies are exempt from the new rulings. To be classed as a small company you must meet two of the three following criteria:
- Annual turnover of less than £10.2 million
- Have a balance sheet with less than £5.1 million.
- Have 50 employees or fewer.
This means a large proportion of UK companies will remain responsible for their own tax position from April 6th.
How Will It Affect Me?
Companies will be required to declare if an employee is ‘inside or outside’ of IR35. If you are considered ‘inside IR35’ it has been determined by HMCR that you provide a service that is more fitting to employment, rather than self-employment. This means you are likely to have a higher tax bill.
Being ‘outside IR35’ within the private sector will mean that you will need to pay your own employment taxes. You will be required to calculate a reasonable salary and make any required National Insurance and PAYE tax submissions to the HMRC. An accountant can assist will calculating your salary and what you are required to submit.
And being ‘inside IR35’ differs because your employer will pay the necessary National Insurance and PAYE taxes on your behalf, but they will be deducted from any payments made to you.
These rules have been in place for ‘inside IR35’ roles in the public sector for some time and have not been welcomed kindly by consultants, freelancers and contractors. It very quickly increased the prices these types of employees must charge, which in turn has made it harder to secure employment. This is especially the case when the IR35 rules have been applied on a blanket basis.
Blanket assessments are used by employers of these types of employees to save themselves time. They won’t assess what tax each employee should be paying on a case by case basis but rather by role. For example; each role will be determined as either ‘inside or outside IR35’ rather than on each individual within the role. This has meant any cases of under or overpaid tax falls back on the employee and can lead to unseen costs and fines.
Should I Be Worried About The New IR35 Rules
Only if your business doesn’t meet two of the three criteria are these changes going to affect you. Contact us today if you would like to discuss the new IR35 rules and how they might apply to you.