IR35

We're experts in IR35. Our dedicated team of specialists are always on hand to keep you ahead of the game.

Close Personal Service Company

Many contractors provide services to clients via their own limited companies. In tax talk, this is often referred to as a Personal Service Company, or PSC.

A PSC is generally defined as a limited company with a sole director - the contractor. That person owns all - or the majority of - the shares. PSCs provide professional services delivered by an individual, direct to a client, or via an agency.

What is IR35?

IR35 is a tax law that targets disguised employment.

Disguised employees are those who falsely position themselves as limited company contractors. They often do this to pay less tax, something HMRC sees as tax avoidance. HMRC introduced IR35 to help decide whether contractors are working through their limited companies correctly. The legislation tends to concern freelancers and contractors who provide their services via Personal Service Companies (PSCs).

 

'Inside' or 'Outside' IR35?

If certain conditions are met then, under IR35, the earnings of the PSC are considered to be a 'salary', on which, Income Tax and National Insurance contributions (NICs) are payable. This means you're 'inside', or 'within', IR35. Where such conditions are not met, a contract is deemed 'outside' IR35.

 


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To find out more about the legislation, and how it works, here's a quick video to explain more.

What are the changes to IR35?

Reforms to IR35 in the private sector came into force at the start of April 2021. They followed similar changes made in the public sector in 2017. The rules intend to ensure that those who bill for their services via a limited company - despite working in the same way as an employee - are paying the right employment taxes.


clientIt's important to note that you won't be responsible for assessing the IR35 status of your contract unless your end client is a "small business". That decision is no longer yours and is instead determined by your client.

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If your contract is within IR35, your contract income will be subject to tax and National Insurance. So, your tax and NICs will get calculated - and deducted - by either your client or recruitment agent.
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Those assessed as being inside IR35 will be taxed as an employee, but without the statutory benefits associated with employment. This includes things like holiday pay and sick pay. In addition their position will change in relation to Travel and Subsistence expenses.

Check out this video for more information on IR35 changes, and what they could mean for you.

How does IR35 work?

IR35 applies when three conditions are met:

• An individual performs services for a client.

• The services get provided under a contract that involves an intermediary (i.e. a PSC).

• If the services were provided under a contract between the individual and the client, the individual should be regarded as an employee of the client.

How it works in practice ...

It's swift, simple and stress-free to register.

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Did you know ...

The Intermediaries Legislation became known as 'IR35' because that's the reference number of the press release which announced it!

Switch to Umbrella...

Keep the flexibility of a freelancer, while gaining the benefits of an employee.

If you're employed by an umbrella company, you won't get caught by IR35. The legislation targets those who should be classed as employees, but aren't. As a consequence, IR35 doesn't apply to umbrella company employees.

By working through an umbrella company, you'll become an employee. This includes statutory entitlements like holiday pay, sick pay, and paternity or maternity pay. You'll also get the invaluable asset of continuous employment. This is often a requirement if you wish to access financial products at more attractive rates.

Already a Danbro Accounting client?

If you're already a client of ours via your PSC, you can keep your limited company and transfer to our Umbrella. This is particularly useful if you think future contracts will be outside IR35.

It's easy to register. We’ll get you set up within a matter of minutes.

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We'll give you an indication of what your take-home pay could be after necessary deductions have been made.

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