Over the years, HMRC (Inland Revenue) has had compliance for contractors and
freelancers on top of their agenda.
paysure work alongside all guidelines set out and we ensure
that you and us are fully compliant. There are certain legislations that you
should be fully aware of as they affect you and your working practise as a
contractor/freelancer. If you do not adhere to HMRC legislation you could be
fined and back Taxed accordingly.
IR35
You would have probably heard the term IR35 and even now there are
different ways that this is interpreted. paysure understands IR35 and exactly
what it is. IR35 was first mentioned in a budget press release by the Inland
Revenue in September 1999, but actually came into effect as of April 2000. IR35
is simply an abbreviation as it was document number 35 and the IR stands for
Inland Revenue. IR35 was introduced to stop contractors and freelancers who were
not paying the appropriate level of Taxes and NI contributions (NIC's). They
particularly scrutinised those contractors or freelancers who were using
Personal Service Companies (PSC's) or Composite Companies. These were
advantageous to the contractor as a large proportion of the pay was paid via
Dividends or Shares which attract very little Tax. IR35 was introduced to stop
this.
Does this affect you?
IR35 affects all contractors and freelancers, however dependent on whether you
are deemed 'Inside' or 'Outside' IR35 is probably a more important question as
this determines your choice on how to be paid.
IR56 - This was introduced to help contractors and freelancers decide
whether they fell 'Inside' or 'Outside' of IR35. If you are deemed to be 'Inside'
IR35 you are considered to be 'Employed' and therefore unable to be a Director
of your own company and take a Dividend. If you are deemed to be 'Outside' you are
deemed to be 'Self-Employed' and therefore are able to take Dividends.
So am I in or out?
If you answer 'Yes' to the following questions you will probably be deemed
'Inside' and therefore 'Employed'
- Can you be told at any time by a line Manager what to do and how to do it?
- Do you use the company's equipment?
- Is there a contract for fixed hours in terms of when and how long you work for?
- Are there other tasks you can be sent to do?
- Can overtime or bonus payments be paid to you?
Or
By answering 'Yes' to the following you will probably be deemed 'Outside'
and therefore 'Self-Employed'
- Do you risk your own money in the venture?
- Can you hire someone to do the job for you?
- Is all the equipment used in the role provided by you?
- Will you get a fixed price for completing the project regardless of how much
time is spent on it?
- At your own expense in your own time, do you have to fix any mistakes?
Whether you are 'Employed' (Inside) or 'Self-Employed' (Outside) you can still
use paysure.
MSC Legislation
The managed service company (MSC) legislation was bought out by HMRC to
run alongside IR35. It was brought out to prevent contractors/freelancers from
using Composite Companies who were paying contractors/freelancers part salary
part Dividend and therefore not paying the correct levels of Tax and NI.
If there are still MSC's trading and contractors/freelances were to use
them, you could be asked to pay back Tax on all income up to seven years.
Transfer of Debt
HMRC brought into practise the Transfer of Debt legislation to recover the
unpaid Tax (debt) owed by contractors and freelancers who have either used a MSC
or who are not paying the correct levels of Tax. This basically means that HMRC
can now not only come after you the contractors or freelancer, but can now
recover the debt from the service provider or agency.
paysure and compliance
The reason contractors/freelancers and agencies are happy to use and work
with paysure is because we are not affected by IR35 or the MSC legislation, as
we apply the correct levels of Tax and NIC's. Rest assured we keep our finger on
the pulse to ensure we keep you and us safe.