At Price Hill & Co Limited, we aim to maximise the take home pay of our clients. This aim has to be within HMRC rules and the legislation in place. Not all clients can take advantage of certain tax planning that is available to others. In particular there are some clients who fall within the rules of IR35 and we have to apply these rules for those clients.
Use our IR35 contract check calculator to test if your contract falls within the rules of IR35 and whether deemed payment is applicable.
The Intermediaries legislation (IR35) was introduced on 6th April 2000 and affects anyone who is working via a company or partnership. The aim of the legislation is to eliminate the avoidance of tax and National Insurance Contributions (NICs) through the use of intermediaries, such as Personal Service Companies or partnerships, in circumstances where an individual worker would otherwise –
For tax purposes, be regarded as an employee of the client; and
For NICs purposes, be regarded as employed in employed earner’s employment by the client.
Prior to the introduction of the legislation, an individual could avoid being taxed as an employee on payments for services and paying Class 1 NIC by providing those services through an intermediary. The worker could take the money out of the intermediary, normally a Personal Service Company, in the form of dividends instead of salary. As dividends are not liable to NICs, the use of a dividend remuneration strategy results in the worker paying less in NICs than either a conventional employee or a self-employed person. And PAYE would not apply to the dividends.
The legislation ensures that, if the relationship between the worker and the client would have been one of employment had it not been for an intermediary the worker pays broadly tax and NICs on a basis which is fair in relation to what an employee of the client would pay.
Implication of being caught by IR35.
Where the contract and/or the working practices of the individual imply that the contract is within the rules of IR35, the company has to pay PAYE and NIC on Deemed payment rules. The way to calculate deemed payment is as follows:-
5% of sales
Motor & Travel expenses
The balance is regarded is Deemed Payment and PAYE tax and NIC has to be paid on this amount.