In April 2021, HMRC plans to change the rules around off-payroll workers in the private sector (commonly referred to as IR35), these changes will affect how tax and national insurance contributions will be calculated for some contractors working through a personal service company.
IR35 is the name given to tax legislation in the Income Tax (Earnings and Pensions) Act 2003 (ITEPA), it applies to individuals supplying their services through an intermediary, usually a personal service company (PSC). The IR35 legislation seeks to ensure that contractors working through their own PSCs pay employment taxes and NICs where were it not for the PSC they work through, they would be employed by the client, commonly known as “inside IR35”.
If IR35 applies, then PAYE and National Insurance contributions are deducted from the rate. This prevents the contractor from being paid a minimum salary, up to the limit of his/her tax-free allowance and leaving the rest in the company. If money is withdrawn from a company as a dividend, although tax is due at the dividend rate, there are no NICs payable.
Are you candidate wanting to know how the IR35 changes might affect you? please visit our Candidate advice page here.
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