As April 2020 approaches, IR35 is beginning to rear its head. You can get lost for hours online about what is changing and how you may or may not be affected, and we wanted to explain the basics as best we can!
IR35 is is a tax law to stop “disguised employment” (someone who falsely states that they are a Limited Company to pay less tax) from being able to avoid tax. IR35 is basically there to check that Limited Companies are working appropriately and paying the correct amount of National Insurance and the various taxes. New off payroll legislation is being introduced to the private sector from 6th April 2020 which moves the IR35 status determination away from the Limited company to the end client. They’re becoming (understandably) quite strict about this, and if you were to make an accidental mistake tax wise and were then investigated you could end up with a substantial tax bill, and nobody wants that, right?
This legislation will affect our lovely locums who work through their own Limited Company (not the ones who already work through an umbrella company). If you work through your own Limited Company, you are liable for your own tax. This is different to permanent employees or our locums that use an umbrella company. Both permanent employees and locums that work through umbrella are on a PAYE payment system which automatically deducts tax and National Insurance in line with HMRC.
Often locums that work through their own Limited Company may not be aware that they are paying incorrect tax or National Insurance, and sadly there are a few contractors (across a variety of industries) that may use this to their advantage.
As a consequence, HMRC have brought in the changes in IR35 from 6th April 2020 to ensure that tax and National Insurance is fair to all workers across the UK, permanent or locum.
To make sure you’re working appropriately alongside the new laws, there are a couple of steps you can take:
- Use an umbrella company – they will calculate your tax and National Insurance for you, therefore making you perfectly in line with IR35!
- If, for any reason you were to be investigated, they will require you to be able to differentiate between your role and the other employees at the practice, to prove your work is legitimate. This can be done by keeping records of your role, and also having a signed contract describing your role and dates to be worked (which we always provide).
It does come across as very complicated at first – so if there is anything else we can do, or if you need our assistance, we can try our best to explain it to you!