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  • Know your contractor – all you need to know about IR35 and Off-payroll rules

    Know your contractor – all you need to know about IR35 and Off-payroll rules

    IR35, intermediaries’ legislation, off-payroll rules, agency rules.  So much jargon! And so many ways in which a contractor/consultant can engage with your business.

    With the change to the way in which contractors who work with you will be taxed almost upon us (and the corresponding obligation on business regarding payroll) it is worth taking 10 minutes to wrap your head around which regime applies and what your obligations may be when you are looking for talent to support your business.

    IR35 and Off-payroll Rules

    The contractor is providing their services to you through their own company or partnership.

    IR35 and the off-payroll rules form part of the intermediaries’ legislation.  It applies where a contractor engages with your organisation through an intermediary.  The intermediary must be owned or controlled by the contractor and is typically a limited company (personal services company) or a partnership.  When making the determination as to whether the intermediaries’ legislation applies, the question is always: “would the person who is supplying the services be considered to be an employee of the business were it not for the fact they are doing so through the intermediary?”  Until April 2021, the intermediary is obliged to ask and answer the question and, where required to do so, deduct and pay over the necessary income tax and NICs to HMRC (This is IR35 in its usual form).  With effect from 6 April 2021 the off-payroll rules shifts that obligation to ask the question to your business and, if the answer to the question is “yes” then your business must deduct income tax and NICs from the VAT exclusive amount of the fees and account to HMRC for the amount so deducted as well as employer’s NICs (and possibly apprenticeship levy).
    There are some exemptions to who will be affected by the change, the most important of which is the small company exemption.  If you are a small company you will have an annual turnover of less than £10.2m, a balance sheet total of less than £5.1m and/or fewer than 50 employees (you need two of these).  If you fall into this category then the intermediary through which your contractor provides their services retains the obligation to ask the question.  This is indeed good news for small businesses saving them the burden of compliance.  Be mindful though, if you are fortunate to be able to claim this exemption, that you assess annually whether the exemption still applies.  If the exemption no longer applies because your business has exceeded the metrics of the test, then in the off-payroll rules are applicable from the start of the tax year which follows the year in which your businesses ceased qualifying for the exemption.

    Agency Rules

    The contractor is supplied to you through an agency and there is no personal services company or partnership involved

    For the purposes of tax, where an agency supplies a contractor to your business and that contractor is subject to supervision, direction and control by any person, then the contractor is taxed as the employee of the agency.  The agency has the obligation to assess whether any party is able to supervise, control or give direction to the contractor.  For example, you contract with an agency for the supply of an IT consultant for 3 months to support your help desk.  That person works under the day-to-day control of the head of IT in your business and timesheets are supplied to the agency.  In these circumstances, the agency must deduct income tax and NICs and the agency will have to account for employer NICs.
    What if the agency supplies a contractor who has their own personal services company?  Off-payroll rules will apply because the contractor is working through an intermediary.  So, unless you can claim the small company exemption, you will need to make an assessment regarding the tax status of the individual and operate payroll if required.

    How to work out what action you need to take?

    The key question is: “does the contractor provide their services through their own company or partnership?”  If they do, you know you are dealing with the off-payroll rules.  Your next step is to consider whether there is an exemption available to you.  Failing an exemption, you will need to comply with the off-payroll rules.  Knowing an understanding the various regimes in play when hiring contractors will enable you to make your business ready to secure contracting talent quickly and when you need it most.

  • Know your contractor – all you need to know about IR35 and Off-payroll rules

    Master Your Contractor: Essential IR35 & Off‑Payroll Insights

    IR35, intermediaries’ legislation, off-payroll rules, agency rules.  So much jargon! And so many ways in which a contractor/consultant can engage with your business.

    New Tax Rules for Contractors: A Quick Reality Check

    So, the tax authorities have switched gears on how they want to pull the strings from the contractors we hire. In plain English: the government is tightening the payroll must‑have for businesses that bring in outside talent. Let’s break it down so you can figure out which bucket your company should drop into and what you need to do to stay on the right side of the law.

    What’s the Grin‑And‑Share‑It?

    • What’s the new rule? Your contractor’s taxable earnings are now largely treated as your payroll obligations.
    • Why should you care? It means the company pays taxes, not the independent contractor, unless you’re set up as an employer‑employee umbrella.
    • Why the fuss? The shift reduces grey‑area loopholes that sometimes let businesses dodge full payroll responsibility.

    How to Tell Which Box You’ll Sit In

    1. Check your contract type – if it’s a solo consultant or gig worker, you’re usually on the contractor side.
    2. Ask yourself if the contractor’s job would be considered “insourcing” – if you’re paying them for a full service, you’re more likely under the payroll umbrella.
    3. Work with a tax pro or accountant to map out the exact regime and check whether you already have the paperwork sorted.

    What You’re Obligated to Do

    • Set up payroll for your contractor if you’re on the paying side – this includes tax withholding, National Insurance, and contributions.
    • Keep records – minutes, invoices, and any contractor agreements need to be stored electronically for at least 6 years.
    • Preparation for audits – make sure to have a clear chain of command and justification for each contractor’s role; the office may pop in to check you’re not playing with numbers.
    • Bob’s the Builder ethic – adopt a culture where the contractor gets a clear separation of duties and benefits, so they feel valued but not misclassified.

    Take just ten minutes, grab a coffee, and map your onboarding flow. That’s all the change you’ll need to truly understand which tax regime applies to your business when you’re hunting for fresh talent.

    IR35 and Off-payroll Rules

    How Off‑Payroll Rules Hit Your Contractor Rent‑A‑Worker Situation

    Ever wondered who pays the taxes when a contractor runs through a personal services company (PSC) or a partnership? That’s where the IR35 and the off‑payroll rules wiggle into your business. They’re basically the “intermediaries’ legislation” that tries to figure out if the contractor is really an employee or just a fancy freelancer.

    Step 1: The “Would They Be an Employee?” Question

    The crux is simple: Would the contractor be an employee of your firm if the PSC or partnership didn’t exist? If the answer is “yes,” the tax puzzle starts.

    Before April 2021 – The PSC Manages Taxes

    Until the big change in 2021, the PSC had to ask that employee‑question and, if “yes,” pull the necessary income tax and National Insurance Contributions (NICs) directly from the contractor’s fees. Then, they filed those numbers with HMRC.

    From 6 April 2021 – The HOD (Your Business) Steps In

    • Your company must now ask the employee‑check.
    • If the answer again is “yes,” you’ll be pulling tax and NICs from the contractor’s fees (minus VAT) and sending them to HMRC.
    • Don’t forget the employer NICs and maybe the apprenticeship levy—yes, those are on the menu too.

    Small‑Company Exemption – A Breather for the Lean and Mean

    Not all firms feel the sting. If your company meets two of these three bullets:

    • Annual turnover under £10.2 million
    • Balance sheet total under £5.1 million
    • Fewer than 50 employees

    —You’re in the “small‑company exemption” club. In that case, the PSC still owns the tax‑inquiry duty. It’s a nice relief for the high‑tempo SMBs that don’t want to juggle extra admin.

    Heads‑Up: Keep an Eye on the Numbers

    Even if you’re exempt today, double‑check every year. Once you cross any of those thresholds, you’ll fall into the off‑payroll schema that kicks in from the first month of the next tax year.

    Bottom Line – Know Your Status or Face Tax Tangles

    Whether you’re a medium‑size firm or a tiny micro‑business, spotting where you sit on the exemption line matters. No more surprises, no more headaches—just clear, tidy tax compliance.

    Agency Rules

    When an Agency Hands You a Contractor

    Picture this: your office hires an external contractor through an agency. The contractor isn’t a partner of yours nor does he boot up his own personal services firm—he’s just a freelancer on the agency’s roster. Things get tricky when the agency starts calling the shots. Let’s break it down.

    Rule One – The Supervised Contractor Is Treated Like the Agency’s Employee

    • If the agency keeps a tight grip on the contractor—setting schedules, giving instructions, reviewing work—then the contractor is considered an employee of the agency for tax purposes.
    • In this case, the agency must:
      • Deduct income tax and National Insurance contributions (NICs) from the contractor’s pay.
      • Collect the correct employer NICs.
    • Example: You bring in an IT consultant for three months to boost your help desk. The consultant reports to the head of IT in your company and submits time‑sheet data to the agency. The agency assumes full payroll responsibility.

    Rule Two – When the Contractor Is Running His Own Personal Services Company

    Now, imagine that contractor owns a little “personal services firm” (PSL), which serves as a middle‑man between him and the agency. The off‑payroll rules kick in. These rules state that the contractor is not treated as a simple employee; the agency must:

    • Carry out a thorough tax status check of the contractor.
    • Determine whether the small‑company exemption applies (the 30‑minute cash rule).
    • If the exemption fails to hold, the agency must treat him as a payroll employee and manage all tax withholding and NICs.

    Bottom Line

    In short, whether the contractor is just a hired hand or operates through his own micro‑company will dictate who shoulders the tax burden. If the agency keeps the contractor firmly under its control, it’s that agency’s job to do the payroll. But if the contractor is sandwiched between an agency and his own little company, the agency must step up, check everything, and possibly run the payroll themselves—unless the small company exemption wakes up.

    How to work out what action you need to take?

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    Decoding Contractor Status: Own Company or a Partner?

    Step One: Ask the Right Question

    Do they run their own business or are they part of a partnership? That’s the fire‑starter that tells you where you stand.

    What Happens When It’s Their Own Company?

    When the contractor draws the line from their own firm, you’ve officially entered the off‑payroll arena. It’s no playground—there are strict rules for tax, benefits, and paperwork.

    Time to Look for Exemptions

    • Search for any legit exemption that could drop you out of the heavy compliance load.
    • Fail that, and you’ll have to follow every off‑payroll rule to the letter.

    Get Ahead of the Game

    Understanding the maze of regimes that govern contractor hiring means you’ll know exactly when you need talent, how to pull them in fast, and what legal hoops to jump over. Keep your business agile, ready, and—most importantly—compliant.