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What is IR35 and how does it affect you?

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Written by Caunce O'Hara
Last updated September 11, 2017

Whether you’re new to contracting or an old-hand, the issue of IR35 is never far away.  IR35 status affects your tax and National Insurance, so it can have a significant impact on your take-home pay.

The rules can be confusing and there are severe penalties for non-compliance, so it pays to take professional advice.  That’s why we would like to introduce you to specialist contractor accountants, Crest Plus.

We are very excited to announce that Crest Plus are working with us via our Partner Programme and their Accounting Manager Mike Wilson is here to offer you a helping hand by providing an overview of IR35 and explains what you should do if you’re of the view it may apply to you.

What is IR35?

IR35 status affects how much tax and National Insurance you pay if you contract through your own limited company or via a recruitment agency.

If you are subject to IR35 then PAYE and National Insurance Contributions (NICs) will be deducted from your earnings at source.  In a nutshell, this means a higher tax bill and less take-home pay.

How do you know if IR35 applies?

IR35 status is determined by the level of autonomy you have over the way in which you work.

Before starting each contract, you need to ask yourself:

  • Do you have a free hand to decide how the work is carried out?
  • Do you have to carry out the work yourself or can you send a suitably qualified individual to do the work?
  • Are you free to decline work from this client if you choose to do so?

If you answer ‘no’, then your role could be subject to IR35.

Your options

You will need to consider IR35 rules before taking on any new contract.  Unlike many accountancy practices Crest Plus offers their clients unlimited IR35 reviews to enable them to discuss new contract opportunities and whether IR35 would apply.

If IR35 does apply, you have a number of options including:

  • Declining the contract and seek work which is not subject to IR35.
  • Exploring whether it’s possible to work as an employee rather than a contractor.  While you would pay tax and NICs as an employee, the benefit would be that you would be entitled to the rights and protections of an employee.
  • Opting to join an umbrella company like Umbrella Plus which is operated by Crest Plus. You would, in effect, become an employee of Crest Plus but you would be able to work for a number of organisations while enjoying employee benefits such as holiday pay, sick pay and ‘continuous employment’ which is helpful when securing mortgages and other loans. 

What to do next?

Crest Plus has helped more than 350,000 contractors over the past 20 years. The team can provide the advice and support you need throughout your contracting career.

If you have any questions as specialist contractor accountants, Crest Plus can provide you with even more details on IR35 and offer advice on so much more. Just take a look at their website here or call 01244 684700.

N.B. If you are a contractor in the public sector then you need to know about new rules which came into force on April 6th.  The new rules led many NHS organisations to cease to use contractors who worked through their own Personal Service Company (a type of limited company).  However, the NHS’s position appears to be changing in that each case is to be considered on its own merit. See here to learn more.


Avatar
Written by Caunce O'Hara
Last updated September 11, 2017

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