Double-entry accounting tools can also help you out when tax time rolls around. For this reason, it’s wise to take out insurance if your business hires a lot of freelancers. Where in the past, the contractor would be responsible for any back taxes, that responsibility now falls on you. This exposes your business to new liability. If the contract turns out to fall afoul of IR35, the client will then be responsible for paying past due taxes and National Insurance. This normally only happens when a contractor’s status raises red flags. If a contractor is working outside IR35, HMRC may open an enquiry. Now, both public and private entities need to determine their contractors’ status for themselves. In the private sector, it was the contractors’ own responsibility. Prior to 5 April, 2021, only public sector clients had to determine their contractors’ IR35 status. The basic rules for IR35 have recently changed. What follows is a quick guide to IR35, and a few tools to help you determine the cost. This is unfair to individuals in the same jobs who are working as regular employees. But it also provides an incentive for bad actors to pretend to be contractors when they aren’t. In fact, this is still legal, if you’re a legitimate contractor.įor this reason, contracting work can be far cheaper than working under an umbrella company or as a regular employee. Then, they could pay themselves with dividends to avoid National Insurance Contributions (NIC). They could then pay a 20% corporate tax and claim business costs. Before IR35 rules, an individual could work as a contractor through a limited company. Individuals might do this to avoid taxes, or to make themselves more marketable.
It’s designed to catch so-called “disguised employees.” A disguised employee is a contractor who functions as a full-time employee. IR35, also known as the Intermediaries Legislation, is a UK tax regulation that covers off-payroll workers.
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