Ever since the Government announced that it would be extending its controversial IR35 off-payroll rules to the private sector, contractors across the country have been dreading the date of the inevitable rollout. With the unpopular legislation now expected to be extended to the private sector this year, many people affected by the changes will be looking at their accounts and decided whether or not a career in contracting is for them.
If you’re a contractor currently working in the private sector, understanding these changes is crucial if you’re going to navigate the rollout unscathed. To help you manage your finances in the coming months, we’re taking a closer look at the Off-payroll legislation and what it may mean for you.
What is IR35?
The IR35, or Off-Payroll, legislation was first introduced to the public sector back in 2000. It was designed by the Government to help prevent tax avoidance on the part of contractors, something that was perceived to be a problem by many inside HMRC. Despite the fact that IR35 was almost universally unpopular among contractors, the Government has decided to roll the legislation out to cover the private sector as well. This means that contractors across the UK are now going to have to look long and hard at their setup to ensure they comply with the law.
An employee or not an employee?
Essentially, Off-Payroll legislation tries to prevent contractors acting as ‘disguised employees’. As @Qdoscontractor explains, “Contractors, being technically self-employed, are not taxed in the same way as average employees, taking dividends from their company and paying far less in National Insurance Contributions.” If HMRC decides that a contractor falls inside IR35, they’ll require them to pay tax in the same way as other employees of the business. However, if they fall outside of IR35, they’ll be able to continue to work and pay tax as a self-employed worker.
How IR35 could impact on your finances
If you’re deemed to be working inside IR35, you’ll have to pay tax as a standard employee instead of a self-employed worker. This means you won’t be able to claim for travel expenses, work clothes, tools and other items that can normally be deducted when doing your tax return. If you travel a long distance to get to work, or if you have other ongoing expenses that you’d normally write off against tax, these changes could have serious implications for your income. If you’re currently trying to buy a property, a reduction in your income could reduce the level of mortgage you’re able to secure.
Understanding the new Off-payroll legislation, and what it means for you, is incredibly important if you’re going to stay on top of your finances. If you are looking to get a mortgage as a contractor, speak to one of our expert advisors by getting in touch with a member of our team today.
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Written by: Cambridge Web Marketing