The Implications of Being inside IR35

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IR35 legislation can be difficult to understand, but what happens if an assignment or contract you’re working on falls inside IR35?

This guide explores what happens if you’re found to be working inside IR35, what it means and what you’ll need to do.

How do I know if I’m inside IR35?

To discover if your current assignment is classed as being inside IR35, you can use HMRC’s Check Employment Status for Tax tool.

What happens if I’m found inside IR35?

Whilst there are much better tax benefits to working outside IR35, if you are found to be working inside IR35, there’s no need to panic. You can still run your own Personal Service Company (PSC) or limited company and you can still continue with the assignment you will just need to ensure you are paying the correct tax. Your accountant can help with this however it may be beneficial to switch to working under an umbrella company such as Parasol for the duration of the contract which is inside IR35.

What do I need to do if I’m found inside IR35?

If you’re found to be working inside IR35, and therefore are deemed to have the same responsibilities or benefits as a permanent employee, your earnings for that assignment are also considered the same as a full time employee. As such, your earnings are treated as an employee’s would do in terms of national insurance tax deductions.

Due to this, you will have to pay a ‘Deemed Payment’ at the end of the tax year to account for any tax deductions or national insurance contributions that an employee would have paid; also known as the ‘deemed employment payment’. If you’ve already paid enough national insurance and tax then you might not need to make a deemed employment payment.

Do I need to make a deemed employment payment?

To decide whether you’ll need to calculate a deemed employment payment you can follow the below steps:

Step one: Working out how much your limited company or personal service company (PSC) has received in the tax year from any IR35 assignments.

Step two: Working out how much income you were paid by your limited company or PSC (after income tax and national insurance were deducted and paid to HMRC).

If the figure from step 1 is more than the figure from step 2 then you will need to calculate the deemed employment payment.

How do I calculate the deemed employment payment?

To calculate the deemed employment payment that you owe to HMRC, you can use the IR35 deemed payment calculator tool (an Excel document).

How can ClearSky Contractor Accounting help?

At ClearSky Contractor Accounting we’re with you all the way. We’re experts in IR35 and provide unlimited IR35 reviews for clients on our Assure and Executive packages to give you peace of mind. If you discover that a current or future assignment will be inside IR35, we can also easily help you switch to working under an umbrella company for the duration of that particular assignment with the help of our sister company, Parasol.

For more information or advice on IR35 please give our best advice team a call on 0800 464 0379.

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