IR35Introduction to IR35
IR35 is the UKs tax legislation designed to tax “disguised employment” at a rate similar to actual employment. In this context, “disguised employees” means a worker who receives payments from a client via an intermediary and whose relationship with their client is such that had they been paid directly, they would be an employee of the client. Employees pay tax on their wages. Companies provide a service which is paid on invoice and enters a companies accounts on which tax may or may not be paid according to the companies profitability.
Before IR35 was introduced, workers who owned their own companies were allowed to receive payments (on invoice) from clients direct to the company and to use the company revenue as would any small company.
The IR35 rules only apply if you would have been an employee of your client, had it not been for the existence of your agency or umbrella company.
- If you are within the rules of IR35 you are obliged to pay tax on your earnings as if you were an employee of the client.
- IYou are outside the rules of IR35 if you can prove you are providing the services of company.
If you can answer ‘yes’ to most of the following questions, you would probably have been an employee of your client for the contract in question and therefore within the new rules:
- Do you work set hours, or a given number of hours a week or a month?
- Do you have to do the work yourself rather than hire someone else to do the work for you?
- Can someone tell you at any time what to do, when to work or how to do the work?
- Are you paid by the hour, week or month?
- Can you get overtime pay?
- Do you work at the premises of the person you work for, or at a place or places he or she decides?
- Do you generally work for one client at a time, rather than having a number of contracts?
If you can answer ‘yes’ to most of the following questions, you would probably not have been an employee of your client and therefore outside the new rules:
- Do you have the final say in how you do the work for the client?
- Can you make a loss on the contract?
- Do you have to provide the main items of equipment you need to do the job for the client, not just the small tools many employees provide for themselves?
- Are you free to hire other people on your own terms to do the work you have taken on?
- If you are free to hire other people on your own terms, do you pay them out of your own pocket?
- Do you have to correct unsatisfactory work in your own time and at your own expense?
- Do you have a number of clients at the same time?
All Temporary Workers who are working on assignments provided by bbu are within the rules of IR35 and should pay tax and NIC on their weekly salary.
More information can be found on the HMRC website by clicking on this link.