What is IR35 and Off-Payroll?

Dave Chaplin provides an overview of what IR35 and Off-Payroll is.

IR35 refers to the intermediaries tax legislation that has been around since April 2000.

Off-payroll is similar legislation that was introduced in the public sector in April 2017 and which applies to the private sector from April 2021.

Whilst both pieces of legislation are separate parts of the tax statute and have key differences, they are confusingly both referred to as “IR35”. Don’t get them mixed up.

The legislation deals with something called “deemed employment” and applies where a contractor is providing their services to their client via a limited company.

The underlying issue the Treasury has with this way of working is that the percentage of tax collected by HMRC for this type of transaction is less than one based on employment. This is mainly because when hirers engage this way they do not have to pay secondary class 1 national insurance contributions, also called employers NI.

Under the original IR35 rules contractors were required to assess whether they were a “deemed employee” and pay tax accordingly.

Under the new rules the hiring firm is now required to assess the nature of the relationship or what is referred to as the “IR35 status”, and pay the appropriate taxes if it is “inside IR35”.

If it’s “outside IR35” then they can continue to pay money gross to the contractor just like a normal business-to-business relationship.

If you need help with your assessment regime then please book a demo of IR35 Shield.