Employment
Self-Employment
Non-IR35 Company IR35 Company
Earnings
£80,000
£80,000
£80,000
£80,000
Income Tax/ Corporation Tax
£20,360
£20,360
£22,704
£19,570
National Insurance £6,070
£4,056 £55,554
-
£13,984 £46,446
Net earnings Employer NIC
£53,570 £9,877
£57,296
-
-
-
Total Tax and NIC £36,307
£24,446
£22,704
£33,554
When this change was enacted for public sector bodies in April 2017, many of them decided to apply a blanket rule and treat any contractor with a company as being within the IR35 rules. This led to an additional £550 million in tax for HMRC in the first year of operation, but also resulted in a lot of contractors leaving the public sector creating a shortage of workers and an increase in contractor rates. A recent survey in the Financial Times showed that over 60% of large and medium sized businesses were concerned about missing out on skilled contractors when the changes come into force. Although small businesses are exempt from the rule changes, they could be impacted by a shortage of workers and an increase in prices.
My advice for any business that uses sub- contractors is:
HMRC are looking to raise an additional £1.3billion in tax per year by changing the rules in this way. They are going to use significant resources to ensure that businesses are applying them in the right way. Act now so you won’t be caught out. Scrutton Bland have over one hundred years’ experience in advising businesses on tax, audit, accounting and all financial aspects of business management. To find out more about IR35 and your responsibilities contact Jason Fayers at hello@scruttonbland.co.uk or call 0330 058 6559 .
• Don’t leave it too late, the rules come into force in April 2020, so now is the time to act and review whether you have any exposure to the changes. • Don’t just apply a blanket rule to all subcontractors who use companies. This is going to significantly reduce the take home pay of many and could lead to a shortage of workers or higher rates. • Review your contracts with sub-contractors. If possible, consider whether they should be amended so that they do not fall within the IR35 rules. The tax savings for the sub- contractor are significant. • Take professional tax and legal advice. The penalties for not applying the rules correct can be substantial and could pose a large risk to your business.
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