The introduction of IR 35 in the UK will present significant challenges to contractors. The Covid-19 crisis has resulted in a delay to the introduction of IR 35. It was due to be introduced in April 2020. The British Government has now decided to defer the introduction until April 2021. The deferral gives people impacted by the introduction of IR 35 the opportunity to spend time ascertaining their status and if they fall within our outside IR 35. AAL can help you with your IR 35 issues.
What is IR 35?
IR 35 is an anti-tax avoidance legislation introduced by in the UK to prevent individuals using limited companies to pay less tax.
What Is A Deemed Employee?
Often referred to as a ‘deemed employee’ or a ‘disguised employee’, this is where an employee is recruited on a contract basis, often through an intermediary, to carry out work for a company rather than being employed with a permanent contract.
Despite a contract being with a limited company, the reality is more like an employer-employee relationship, the worker should be taxed as an employee. This is referred to as a ‘deemed employee’.
The IR35 legislation looks to identify ‘deemed employees’ and ensure they are taxed correctly, however IR 35 can impact those operating genuinely through a limited company structure due to the subjective nature of the legislation.
Who is impacted?
IR 35 impacts UK personal service companies (PSCs) which, broadly speaking, refers to limited companies with a sole or majority director/shareholder who provides the services of the company.
Being ‘Inside IR 35’
If your contract is deemed inside IR 35, you’re considered an employee for tax reasons. This means you’re effectively required to pay tax at the same rate as an employee in the same tax bracket. When working inside IR 35, you’ll need to pay National Insurance Contributions (NICs) and Income Tax on your earnings.
The rules will result in an increased tax and N.I. liability and will prevent contractor companies from retaining profits to grow their business in the future.
Tax and employment legislation are currently separate. So, whilst you may be considered an employee for tax purposes, you are not automatically entitled to employment rights.
What are the next steps you should take?
IR 35 will come into force in April 2021 and all contractors should seek advice to determine their position under the new Rules.
How AAL Can Help You
We can advise you on the status on IR35 and ascertain if you fall within or outside of the IR35 and your options thereafter.
AAL can provide advice and guidance on this issue, to help you determine what is best for your business.
Call us on 00353 52 61 37775 today or complete the form below.
Further Reading from AAL
We have written extensively about the impact of Covid-19 in recent weeks and how businesses can utilise the time to better position themselves for a time when life returns to normal. You can read some of our most read articles on the topic below.
Organisational Change Is Now Continual Change
There is some hope that the crisis is peaking from a health and economic perspective. There is no denying that the pandemic has caused people to stop and think about how they are doing business and why they are doing what they do. However, in this article our Managing Director Áine Kiely O’Donnell suggests that the businesses who have used this time to think about their businesses need to consider that in the ‘new reality’ they will need to consistently think about their businesses in an effort to maintain their competitive edge. Read more here.
AAL COVID-19 Resources – Managing Your Company In A Time of Crisis
AAL has been providing an extensive amount of information for client companies impacted by COVID-19. The global economy has experienced a shock of the type not seen since the onset of the Great Depression almost one hundred years ago. Government measures have resulted in some companies having to cease operations for the duration of the crisis. Others have been forced to look at new ways of working in an effort to continue operating at this time.
We have compiled some of our most read articles and most relevant communications to client companies to enable you to understand how the COVID-19 crisis impacts on you and your company.
Our company is working with our a wide range of companies, across many sectors, at the moment and we are helping them to deal with the current crisis. We are also helping them to look at how their company might come out through ‘the other side’ of the COVID-19 crisis as a stronger company. Contact us today on 052 61 37775 if you would like to speak to us about how we might be able to help your company through COVID-19. Read the full article here.
It’s Time To Start Thinking Differently
In times of disruption or crisis, novel circumstances abound. Understanding the contours of what is happening and what is most likely to happen next can be the difficult piece, especially if you are a traditional thinker. Áine Kiely O’Donnell looks at new ways of thinking that might help you, and your business, in these extraordinary times. Read more here.