What is IR35?
The official legislation is contained within the “Income Tax (Earnings & Pensions) Act 2003 (ITEPA), Chapter 10, Part 2”, but is often referred to as “Off Payroll Working Rules”, “Intermediaries Legislation” or more commonly as “IR35”. The legislation has been designed to make sure that an individual who works like an employee, but through their own personal service company (PSC), pays broadly the same Income Tax and National Insurance contributions as other employees. IR35 applies where the worker provides services through an intermediary in which they have a material interest, usually the worker’s own limited company, often known as a personal service company (PSC).
IR35 only applies where the worker provides services through an intermediary, usually the workers own personal service company in which they have a material interest (generally beneficial owner or 5% or more interest).
How do temporary workers supply their services?
In order to make sense of IR35, it’s important to understand how contractors (or temporary workers) supply their services (i.e. mechanical fitting, vehicle building, electrical testing etc) via a recruitment agency to a client (hirer). Typically, this is by one of the following engagement models:
- via a Personal Service Company (PSC), also commonly referred to as a contractor’s own ‘Limited Company’ whereby an individual registers at Companies House and are a director, shareholder and control the company and therefore carrying on a business undertaking, typically engaging the services of an accountant to administer their tax affairs.
- via an Umbrella Service Provider (Umbrella), an Umbrella, operating PAYE, employ temporary workers who provide their services on temporary contract assignments through a recruitment agency. By definition an Employer/Employee relationship exists between the two parties as they are engaged on a contract of employment with tax and National Insurance deducted from payroll.
- via Agency PAYE (where offered), the temporary worker is paid through the recruitment businesses payroll, engaged on a ‘contract of employment’ or ‘worker’ contract with tax and National Insurance deducted at source.
How can Clemtech help?
- Communication: Clemtech will ensure that all contractors are kept informed once the client has confirmed their stance and will liaise with all stakeholders to ensure that the relevant course of action is taken.
- Inside IR35: Clemtech will provide compliant PAYE solutions including an approved list of accredited Umbrella Companies along with an in-house PAYE payroll solution. Preferred list of Umbrella Companies
- Outside IR35: Clemtech will continue to facilitate the payment of contractors via their Personal Service Companies.