Self-Employed, Contractors, IR35 tax

The UK system means that people pay different levels of tax depending on whether they work as employees, are self-employed or work through their own limited company. People who are self-employed pay a lower rate of National Insurance contributions (NICs) than employees. People who work through their own limited company can pay an even lower effective rate of tax and NICs than either the self-employed or employees. This is because of the interaction between allowances available and rates paid in the corporate and personal tax systems, and the absence of NICs on investment income, including dividends received from PSCs (Personal Service Companies).  There are many legitimate, commercial reasons for people to work through a company and for businesses to engage individuals in this way. The government recognises the benefits to the economy of having a flexible labour market and has no intention of stopping people from working in this manner.  However, the government believes there is widespread abuse of the system and a Discussion Document was published in July 2015 to explore options available to tackle such abuse. The Business Entity Tests (BETs) were published in May 2012 and are a self-assessment tool which can be used to assess the overall risk of being subject to an HMRC enquiry. There are 12 tests each of which addresses a separate topic including: business premises, professional indemnity insurance, advertising costs, previous PAYE, repair at own risk, client risk, billing, right of substitution and actual substitution. The Discussion Document puts forward one option which would be for engagers to take on more of a role in ensuring that the right amount of employment taxes are paid. Under such an arrangement, those who engage a worker through a PSC would need to consider whether or not IR35 applies (in the same way as they would need to consider whether a worker should be self-employed or actually be an employee), and, if so, deduct the correct amounts of income tax and NICs as they would for direct employees. Many stakeholders have noted the complexity associated with identifying whether or not IR35 applies as being an area of difficulty for some. Therefore, an element of any reform could be to simplify the test for determining if IR35 applies. One option could be to align the test with that used for temporary workers in the agency rules, which is based on supervision, direction or control. Another option could be to look again at some of the suggestions considered by the OTS, such as requiring an engagement to last a certain minimum amount of time to be considered one of employment.  This is a complex area and Contractors and those using PSC require proper advice. RKG Consulting provides the following services to Contracts, PSCs, Intermediaries and the Self-Employed:

  • Company incorporation, registered office and company secretarial services.
  • Preparation and submission of annual accounts and corporation tax return.
  • Monthly payroll processing for director’s salary and dividend extraction advice.
  • Annual IR 35 contract review.
  • Personal tax returns for directors.
  • Preparation and filing of VAT returns for companies.
  • General tax advice and guidance whenever required.

RKG Consulting are Chartered Tax Advisers and look forward to hearing from Contractors, Intermediaries, Engagers and the Self-Employed on contractor-related and IR35 issues. [dlo_lcp TEXT_OPT=”EXCERPT” NUMBERPOSTS=”99″]