To find out more about our umbrella company services, how we can help you and your workers stay IR35 compliant and how we can save you money, get in touch.
Call Us – 0203 880 6776
Email Us – email@example.com
IR35 Rules ExplainedIR35 is UK legislation in place to ensure that tax is paid by workers who provide their services to clients or companies through an intermediary (for example through an umbrella or a limited company) but who would otherwise be considered a member of staff if the intermediary was not involved.
What is IR35 Legislation?IR35 was implemented by the UK government in 2000 and is used to identify ‘disguised employees’ and tax them in accordance with the rate at which they should be paying tax, were they directly employed by their client in respect of Income Tax and National Insurance. Prior to the implementation of IR35, self-employed workers would be able to provide their services as a limited company, and be able to take a considerable large percentage of their earnings, claimed as dividends. This meant that employees were able to save on NICs and other tax obligations and there was no regulation in place for HMRC to change or challenge the relationship in any way. This meant that people could minimise their tax almost unhindered. For a person could potentially leave their employer on a Friday, set up a limited company over the weekend and then return to the same employer, doing the very same job they were previously employed for, but they would now be working as a limited company with potentially fewer tax obligations.
How does Transparent Umbrella Company help?The Transparent Umbrella Company safeguards workers, agencies and hiring end clients in several simple but very important ways: Tax Assurance and Efficiency – We provide tax surety to all parties that no tax avoidance is taking place; explicitly or unintentionally. We also enable participants (with appropriate data and privacy permissions) to view taxes as they are paid, in real time. This avoids the need for expensive retrospective checks by agencies and end clients. Added Protection – All Transparent Umbrella workers are engaged using an overarching employment contract, meaning that individuals can never be categorised as disguised or hidden employees of the client (hirer.) There is a separate service agreement for supply of service between umbrella and agency. More Efficient – Transparent Umbrella uses its own technology platform to exchange data with other parts of the supply chain to improve efficiencies around the speed and transparency of payments, so participants can be sure that there is no ‘hidden rewards’ being shared. Clearer Obligations – As employer, we assist in the collection and reporting of employee and employer taxes and contributions, as well as addressing other obligations under the Agency Workers Regulations and the Working Time Directive. To find out more about our umbrella company services, how we can help workers and recruiters stay IR35 compliant and save time and money, get in touch.
What is Disguised Employment?Disguised employment refers to the status of contract or freelance workers who works in a permanent role for an employer, but who does not pay the necessary taxes. These people are referred to as ‘disguised employees.’ IR35 is applied on a contract by contract basis and is used to see if a worker is a disguised employee or genuinely in business on a different basis, such as a consultant. If a contractor is deemed to be inside IR35 Legislation for a contract and is determined by HMRC to be a disguised employee, it is often the case that the employee in question will be liable to pay income tax and national insurance contributions on a traditional ‘employed basis.’
Tests for Employment and IR35 StatusThe tests that are often carried out in order to determine whether or not a contractor is genuinely in business on their own accord as a disguised employee is via a few determinant assessments: Mutuality of Obligation (MOO) – A contractor passes this test if they expect the client to give them work, and this client expects them to complete it. Substantiation – A contractor passes the substantiation test if they are not able to provide a substitute for or provide a replacement in order to carry out the tasks for the client on their behalf. For example, if a worker has a role that an otherwise equivalent contractor could not carry out, they have not passed this test. CEST – HMRC has deployed its own test tool known an “Check Employment Status for Tax”, otherwise known as ‘CEST’ Control – A contractor passes the control test if they are told where, how and when where the tasks need to be allocated as part of their contract
Who Needs to Be Aware of IR35 Rules?To provide clarity in regards to who needs to be aware of off-payroll working rules and the rules of IR35, it includes you if:
- You are the person responsible for hiring workers [i.e. a recruitment agency] who subsequently provide their services via an intermediary to clients in the public sector
- The service you provide to a client is through your own intermediary
- The work and employment you have is channelled through a partnership, another individual or a personal service company (otherwise known as a PSC)