The recent legislation changes to IR35 in the Public Sector have the potential to affect a wide range of contractors. The new rules place the responsibility for determining whether or not IR35 applies to a worker on the Public Sector client they are working for.
The financial elements of this legislation are complicated, and many people have turned to an IR35 accountant like Brookson for help. We have compiled a list of common myths about the law so we can correct those that are false, preventing you from being given the wrong information due to rumour.
Myth one: I will be taxed twice – FALSE
One thing a lot of Public Sector contractors are concerned about – understandably – is that they might end up having their income taxed once through PAYE due to IR35, and once again through Corporation Tax. Luckily, this will not be the case.
If a Public Sector client decides you are inside IR35, then whoever pays you or your Limited Company – whether that’s the client directly or its paid by your Recruitment Agency – will deduct the relevant PAYE and NI contributions. What remains after accounting for VAT and any company running costs is yours to take from your company.
Myth two: If a Public Sector client says I’m inside IR35, I have to accept it: FALSE
There are a few steps you can take if you believe you have been wrongfully put inside IR35. The first step will always be to contact a specialist; in this case an IR35 Employment Lawyer will be able to help you. They will be able to review your IR35 status and determine whether or not you should be captured by IR35.
If they conclude you are not inside the legislation, then you can present this evidence to the Public Sector organisation that made the initial decision. If they still insist you are inside IR35, you can contact HMRC and ask them to review the decision.
Myth three: If I’m caught by IR35, I’ll be taxed for previous years – TRUE (if HMRC select you for review)
In theory, if you were falsely claiming not to be covered by IR35 – even if this was an accident – then this is true. You should have been classed as employed for tax purposes and could be retrospectively taxed as such.
It’s worth bearing in mind that HMRC only has a finite amount of resource with which it can carry out investigations into this area. Double-checking each contractor’s past records to see if they were unfairly claiming to be self-employed is unlikely to be viewed as a good use of their time.
Myth four: As I’m being taxed as an employee, I now get employee rights – FALSE
Unfortunately, being taxed as an employee doesn’t mean you are an employee under the law. Being inside IR35 doesn’t grant you rights such as holiday pay and sick leave, as for this you would need to have been hired as an employee (with the relevant contract).
Myth five: The ESS tool is mandatory – FALSE
HMRC’s “Employment Status Service (ESS)” tool is the official method of working out whether or not a party is deemed as being inside IR35. However, that doesn’t mean anybody has to use it, as it isn’t mandatory.
However, it’s important to remember that HMRC will stand by the decision made by the tool, as long as the information input into it is accurate. This makes it probably the most effective way of finding out who is covered by IR35 in the Public Sector and Private Sector too.
If you would like more help and advice regarding the changes to IR35 in the Public Sector, get in touch with Brookson today.