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IR35 Off Payroll Working
The off-payroll working rules are sometimes known as IR35. The press release that first introduced the law in 1999 is referred to as “IR35.” For tax reasons, the IR35 standards for the self-employed are meant to determine whether or not a worker is genuinely self-employed instead of being a “camouflaged” employee.
This is partly due to the tax benefits enjoyed by contractors who establish and operate through limited companies. As a result, independent contractors have more freedom and autonomy in their work but fewer employee perks (such as holidays and paid sick leave). Unfortunately, some irresponsible contractors try to take advantage of this tax benefit by acting as though they are truly self-employed, while in fact, they would be considered employees if they did not operate under a ltd company. The off-payroll working rules are designed to address this issue; nonetheless, they do not come without their share of complications.
A worker working as a contractor is a ‘disguised’ employee when they benefit from the tax advantages of working via a limited company; otherwise, they should be considered an employee. For example, consider an employee who quits on Friday and returns on Monday in the same role as a contractor. Is there anything that may be considered a significant modification to the arrangement?
‘Disguised’ agreements are also advantageous to employers since they relieve them of the responsibility of paying employers’ National Insurance payments (NICs) or providing employee entitlements to contractors. Therefore, to combat such arrangements, the self-employed IR35 rules conduct a test on the contract itself to determine whether or not it falls “within IR35” or “outside IR35”:
Since April 6 2017, it has been the responsibility of public authorities to determine whether or not the rules apply in situations where they have engaged workers who deliver services through their intermediary. Before this date, it was up to the independent contractors themselves to decide whether or not the individuals should be classified as employees.
Private sector companies were compelled to determine employment status under IR35 starting April 6, 2021. Even if they were working through an agency or umbrella company, the end user organisation that engaged them was still responsible for deciding the contractor’s employment status and determining whether or not they were subject to IR35. The liability for getting it wrong and mistakenly finding that IR35 does not cover an individual falls on the end-user customer, who HMRC may investigate for failure to comply with its income tax and National Insurance contributions commitments. However, with the recent statement made by the government, the Off-Payroll Working Rules (IR35) have been repealed, and the obligation for determining their employment status has been transferred from the employer to the contractors when the contract is signed.
If you are a locum doctor working for NHS or IT Contractor working in the public or private sector and need more information and advice on IR35 Rules 2023, please call our office or send us an email.
