Off-payroll working in the private sector (IR35) legislation

Off-payroll working rules (IR35) legislation is designed to combat tax avoidance by ‘disguised employees’ (or freelancers / contractors using a limited company to trade when they would otherwise be employed by their client).  It dictates that this type of freelancer / contractor has to pay roughly the same amount of income tax and National Insurance (NI) contributions as they would if they were employed.

Currently, in the private sector, the contractor or freelancer is responsible for deciding whether a contract necessitates the application of IR35 legislation. Conversely, in the public sector, the liability of the application of IR35 legislation is upon the client rather than the contractor. The Government is now proposing to amend the private sector legislation to bring it in line with the public sector.

Under the proposal, if the client decides IR35 legislation should apply, the individual must be placed on to the client’s payroll and all employment taxes deducted, including employers’ NI. Where there is an agency in the chain, which pays the contactor, the individual must go on the agency’s payroll.

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If you have any queries, please contact Matthew Lewis.