Off Payroll Working: A Taxing Situation for Contractors

Forthcoming changes to the IR35 tax rules mean that clients that engage self-employed contractors could face increased income tax and NI liability.

What is IR35?

IR35 rules prevent tax evasion through 'disguised employment,' where self-employed people provide their services through an intermediary such as a personal service company (PSC) to avoid paying income tax and NI on their earnings.

How will it work?

The proposed rules will move responsibility to the client to determine whether there is 'deemed employment' for IR35 purposes, and accounting for income tax and NI if there is deemed employment.

If there is deemed employment between a client and a self-employed contractor, the income tax liability will fall on the client. So, if your business uses self-employed people, even through another company, you will be responsible for working out whether IR35 applies.

Whether a contractor is in 'deemed employment' will depend on the terms of their contract and the way in which their engagement actually operates.