IR35 describes two types of tax laws that aim to identify those contractors or businesses that avoid paying appropriate taxes through various tricks, usually working as disguised employees, or even hiring self-employed to cover their true employment status.
One thing to understand about IR35 is that although you have a contract that falls within the rules of working outside of PAYE, HMRC sees you as an employee for tax purposes.
The off-payroll working rules offer the possibility to those who want to work as employees but through their own limited company, often called ‘personal service company’ or ‘PSC’), or through other intermediaries.
This means that there is a substantial difference between employees and off-payroll workers, and among them, we can highlight the fact that an off-payroll worker, even if he pays the same taxes as an employee, has no legal right to sick pay or holiday pay as well as no minimum working hours guarantee.
Much better tax benefits
There are much better tax benefits to working outside the IR35. But if you find that you work inside the IR35, Lexarox Payroll can help you with that. It can be advantageous to work under an umbrella company during the contract which is inside IR35.
Most of the time, an intermediary is the personal company of a worker, but this can be different in other ways:
- A partnership
- An individual
Therefore, it should be noted that IR35 ensures that workers (who would have been considered employees if they had offered their services directly to the customer) pay -more or less- the same Income Tax and National Insurance contributions as employees, meaning:
- deducting Income Tax (PAYE) and employee National Insurance contributions, and paying these to HMRC
- paying employer National Insurance contributions and Apprenticeship Levy, if applicable, to HMRC
The final customer is the one who receives the services from a contractor. This forces him to establish if the off-payroll working rules apply or not.
>> Read also about Confusing IR35 regarding correct Off-payroll tax treatment