Candidate Insight: What is IR35?
In partnership with Atom Hub.
IR35, a tax law in the UK, aims to create equal tax responsibilities between external contractors providing services to companies and permanent in-house employees.
To understand the potential impact of this law on our candidates, we had sat down with Tom Buckley from Atom Hub to find out more.
What is IR35?
IR35 legislation was introduced in April 2000. It was introduced by HMRC to tackle disguised employment, where an individual would operate via an intermediary to avoid employed levels of tax and national insurance.
Understanding and being aware of your IR35 status is extremely important for all temporary workers, as it will dictate whether you are operating “outside” or “inside” IR35.
The role being “outside” IR35, means that the role dictates you being able to operate via your limited company, in business of your own accord. “Inside” IR35 means that the role dictates you being classified as an employee and having the relevant tax and national insurance deducted from your pay at source.
IR35 is now known as off-payroll working since the changes in 2017 in the public sector.
Who does IR35 apply to?
IR35 (off-payroll working rules) applies to workers/contractors that provide their services to a client via an intermediary (their own limited company).
In most cases now, the responsibility for determining the employment status of the worker sits with the client/engager. However, if the contractor provides their services to a “small” client outside of the public sector, it is the individual contractors responsibility to assess their IR35 status.
Umbrella company or Limited company?
This depends on the length of contract and an individual’s appetite for working in business of their own accord (via their own limited company).
Both options are quick to set up and Atom can help with both.
Who would usually choose an umbrella company?
Regardless of IR35 status, a contractor would usually choose an umbrella company if the assignment was less than 3-6 months old or they were not looking to contract long term.
Who would choose a limited company?
Typically, a contractor would choose a limited company if 1) their IR35 status supported doing so more important but 2) their contract length was greater than 3-6 months old and they were looking to contractor longer term (1year+). Also, in many instances they have operated in business of their own accord previously.
How does IR35 impact your pay?
Typically, if you operate via your own limited company, a contractor will pay themselves a small director’s salary and take most of the funds available from their business in the form of a dividend. Whilst benefiting from structuring their business in a tax efficient manner via their own limited company, sick pay/holiday pay and maternity pay entitlements may be impacted in comparison to what he/she would receive a full time PAYE role (either direct with an employer or via an umbrella company) which they had been in for several years due to it being based around factors such as gross salary, longevity in the role etc.
A contractor would need to consider this when deciding whether a limited company was the correct solution for themselves long term.
What solutions do Atom offer for candidates?
Atom can offer a solution for a contractor whether they are working inside IR35 or outside IR35, either via our umbrella offering or acting as your accountant for your limited company.
We also partner with QDOS in supporting agencies, clients and contractors in helping assess IR35 status where needed.
Employed offering for temporary workers working on short term assignments. Benefit from continuous employment whilst having PAYE tax and national insurance deducted.
Self-employed payment offering for individuals where we sit as a sub-contractor in the supply chain and provide self-employed individuals to employment businesses/end clients.
Accountancy offering for contractors working their own intermediary (limited company).
Payment processing and employment solutions for contractors working all around the world. Our bespoke Atom method offers compliance for both the agency and contractor.
Do you need help with your own interim search?
To discuss the hiring process with Pearse Professionals, contact us at info@pearseprofessionals.com.
Alternatively we can arrange to meet with you and map out a strategy to fulfil your hiring needs.