IR35 went live this week amidst controversy and fears from experts and contractors alike. The reforms will affect some contractors more than others, and limited companies are still worried about what this change will mean for them.
If you work through your own limited company for a large or medium-sized business, as of this week, you will no longer decide if IR35 applies to you. The private sector body will now determine your status for you.
The intent behind this change to how the private sector handles contractors was the government’s view that there was a significant amount of tax that was slipping through the cracks. What has resulted instead is that many contractors will now be taxed as employees without receiving employee benefits.
Inside IR355 means that your limited company or PSC will have to tell HMRC that you owe them extra tax, and then hopefully, the end-client will take care of paying you correctly to account for this. The end-client will also legally bear the brunt of incorrect determinations, but the contractor will be forced to pay back any amount of money they are found to have owed from their pay.
What Does it all Mean?
This means that the tax that is being collected may or may not be correct. Contractors find themselves in a precarious position to trust their engagers to know tax laws better than they do. HMRC has provided little assistance for determinations and heaps of confusing and contradictory information about how to tax and assess contractors.
If you fall outside of IR35, which hopefully you do, then you don’t need to worry about this. If you are found to have been inside IR35 for years of work for an end-client, you may owe many thousands in taxes.
Limited companies do not have to deduct NIC or tax again when paid, assuming that the end-user does their part correctly. For contractors who disagree with their status determination, there is the small assistance of obtaining a Status Determination Statement and then trying to use HMRC’s dubious processes to contest their status determination.
Contractors might want to shift away from working through a limited company and explore becoming an employee or use an umbrella company.
