What is IR35?
IR35 is the name given to the Government’s tax legislation which focuses on identifying 'disguised employees'; individuals who are providing services to a client through an intermediary company, such as a Limited Company or PSC, but whose relationship with the client would be one of employment were it not for the presence of the intermediary such as an agency. Where this is the case, the IR35 rules require the intermediary (agency) to deduct and make payment of the equivalent taxes as would be payable by a typical PAYE employee.
FAQ's about IR35.
Understanding the difference between PAYE & LTD
Following on from recent communication from Nurseplus regarding IR35 and the potential impact, and to provide you with as much information as possible, we want to demonstrate the difference in your take-home pay with the below calculations which have been based on the anticipated standard tax and NI thresholds for 2020-21 tax year. Whilst your individual tax liability may be different, as you can see from the below, there is minimal difference in your take-home pay between PAYE or umbrella, with PAYE being a far simpler process for you.
Thinking about your options?
Whilst the initial umbrella pay rate may look more attractive, you will need to take into consideration the deductions that you will incur (will vary on your individual circumstances / umbrella company fees).
More often we are hearing of workers being fined and sent incredibly high tax bills due to umbrella companies not taxing correctly and these amounts can be life-changing. Working as PAYE ensures that the correct tax is deducted and minimises the risk of being penalised for this.
Benefits of working as PAYE
- Nurseplus will become responsible for Tax and NI Deductions at source
- You will save time as you will no longer have to submit your tax returns each year
- Save on your currents costs for an accountant and automatically become IR35 compliant, meaning no surprise tax bills & fines
- You will be eligible for pension contributions
- You will be eligible for additional statutory payments (such as holiday pay)
- No need for weekly invoicing
Please note, we are not financial advisors, nor is this financial advice and you should always seek your own independent financial guidance.
Who should I refer to if I have more questions?
Your accountant will be in the best position to provide you with more information based on your personal circumstance so you should seek advice from them if you have any additional questions.
IR35 Stories October 2019
Contractors look set to pay back at least £1 billion in tax to HMRC after their true earnings were disguised for years in avoidance schemes, The Times has revealed.
The report states that some 20,919 contractors have so far come forward and told HMRC that they allowed their financial affairs to be managed by offshore-based umbrella schemes. These schemes collected wages on the contractor's behalf. They then paid them in non-repayable loans, hiding national insurance and income tax liabilities. It is thought that contractors and freelancers who have taken part in these schemes each owe an average of £50,000. This is due to be paid back to HMRC in full. However, they will be able to arrange to pay it back in installments, over several years.
HMRC uses new powers on contractors and freelancers: 'I was told to pay £30,000 within 90 days'
Thousands of contractors and freelancers have become ensnared in a £5.5bn tax grab – aimed initially at wealthy tax dodgers – that allows HM Revenue & Customs to demand backdated taxes to be paid, in full, within a three-month deadline.
Revenue is telling ordinary workers to 'pay now, argue later' using new powers to demand tax allegedly owed from years ago – upfront.
Among them is agency Nurse Specialist, Mr Adams (not his real name), who since April has received three demands totaling £27,900 from a job he held seven years ago. If it’s later found that he was innocent of using an “aggressive avoidance” scheme, he will get a refund. In the meantime, he has to find the money within months. “The latest deadline I’ve been given is the end of September,” said Mr Adams, who explained that the amount was around a third of his yearly salary. “If I don’t get the money, I’ll go bankrupt.”
HMRC clampdown - are you affected?
For some, the bills are utterly life-changing. We spoke to one family whose bill is more than £400,000 – owed by a 56-year-old who worked in IT for the NHS for years and who says his only option now is bankruptcy.
Not all were high-earning IT workers. We were contacted by a healthcare professional who was a locum in the NHS for two years. He said: “I was advised to sign up with an umbrella company by my agency [and] advised that they were fully compliant with HMRC, I would not have to worry about end-of-year paperwork because it was fully managed by them. There was never any mention of ‘loans’ at any point and I do not recall ever signing any paperwork agreeing to receive my income through a loan.”
The person has been told they now face a tax bill of about £20,000.
Opus Umbrella Scheme
So I decided to join Bestpay around a year ago thinking everything was legit.
Tried for a mortgage at a bank which was refused due to me not being able to prove my taxable income, I research more and the horror came apparent that I was using a loan scheme. My partner was expecting me to speak to a mortgage broker this weekend to secure a large deposit on a house. I can now no longer do this as I need to speak to HMRC regarding what I owe…Probably looking at around £26,000.
This has put my future in jeopardy due to me not being careful and coaxed into this supposedly 100% compliant scheme.
Am I right to just settle what I owe HMRC rather than buy a house, risk being investigated and losing my new home??
HMRC has won an IR35 tribunal case at the High Court against three BBC presenters who will now have to pay back thousands of pounds in taxes through their personal service companies: click here