The ‘IR35’ rules are designed to prevent the avoidance of tax and national insurance contributions (NICs) through the use of personal service companies and partnerships.

So basically, to prevent you setting yourself up a limited company and charging your boss through it to reduce or eliminate any tax and NI payments you would owe as an employee.

For example, an individual operating through a personal service company but with only one customer for whom he/she effectively works full-time is likely to be caught by the rules. On the other hand, an individual providing similar services to many customers is far less likely to be affected.

The HMRC Jargon

That was it in simple terms but HMRC state that you need to follow IR35 if you work for a client through an intermediary.
This can be your own limited company, a service company or a partnership.

The Re-Work for Public Sector

It has always been the responsibility of the intermediary to follow the IR35 legislation.
However, from 6th April 2017, where the intermediary provides a worker to an end client defined as a public authority (eg. the local council), it is them (the end client) who is responsible for the operation of PAYE and NI payments.

The current IR35 legislation changes apply to off-payroll working in the public sector. Where the rules apply, people who work in public sector through an intermediary will pay employment taxes in a similar way to employees.

Responsibilities

As a worker through a personal service company or intermediary you are responsible for;

  • Providing the fee-payer (your client) with the information they need to help determine whether the off-payroll working rules should apply.
  • If the rules do apply, you must then provide details to enable the client to deduct tax and national insurance contributions from the payments they make.
  • Report to HMRC as usual (both for yourself and the intermediary).

The fee payer is responsible for;

  • Paying the deemed payment to the Personal Service Company.
  • Reporting to HMRC through Real Time Information the employment taxes deducted.
  • Paying the relevant employers NI.

The public authority is responsible for;

  • Determining whether off-payroll working rules should apply.
  • Notifying the worker whether off-payroll rules apply before the contract is entered into.

This newly developed HMRC tool will help determine if you fall under the ‘employed category’

What if the rules apply?

If this is the case, the fee payer (public authority, agency etc.) will calculate income tax and national insurance contributions to pay over to HMRC. These amounts will then be deducted from the intermediary’s fee for the work provided.

Penalties

The dreaded word. One way for HMRC to get that bit of extra money from you.
These are now enforceable so make sure you know the rules and prevent having to pay any more than you already do.

As always, we are happy to help with this and ensure you follow all the rules required.

Talk to us today, about accounting for tomorrow.