Prey and hunter at the same time. As self-employed, you’ve been ensuring that you only pay what is required. But you find it irrelevant because you face double taxation through IR35?
The subject of a great confusion
As clients and agencies adapt to the Off-Payroll Tax, a concerning number appear to have introduced arrangements that apply the IR35 ‘deemed payment’ calculation to the ‘inside IR35’ contract income.
The confusion that led to the double taxation of thousands of contractors came from the misinterpretation of the Off-Payroll Tax, both by customers and agencies.
The problem lies in deducting the employment costs from the contract rates, which is contrary to the legislation in force. Moreover, the law stipulates that these costs should be within the fee-payer’s attributions.
Understanding correctly Off-Payroll tax treatment
Off-Payroll legislation requires that the fee-payer pay the fees for National Insurance Contributions and the Apprenticeship Levy adjacent to the contract rate.
It must be understood that everything that means employment income is a total amount separate from what employment costs represent. This differs considerably from the initial IR35 legislation, which involves a calculation for contractors considered inside IR35 quite confusing regarding the determination of ‘deemed payment’ (the employment income).
This calculation means one thing, which proves to be an injustice to contractors through double taxation. And that is why the Off-Payroll law has tried to correct it. It is about considering the contractual income as the total cost of employment, two different things. Meaning:
DEDUCTING > the proportionate cost of employer’s National Insurance Contributions from the sum
BEFORE APPLYING > income tax and employee’s National Insurance Contributions deductions.
What to do
In conclusion, we recommend two measures that companies can take to offset their employer’s National Insurance Contributions liabilities:
- New contractual clauses introduced by clients and agencies, confirming that the rate agreed with the contractor will be deducted from the employment costs
- Renegotiation of rates
Do you still feel surrounded by a fog of confusion? At Lexarox we take care of this process, in order to ensure our customers a business comfort. Find here all the services we provide to our valuable clients.
If you want to understand better the IR35 rules, you can read about it right here.