Who determines your IR35 status?

Posted on Aug 24th, 2018 | Tax

Following changes introduced by HMRC on 6th April 2017, responsibility for determining your IR35 status depends on the sector you operate in:

  • In the public sector, responsibility now lies with the end client (or agency) who pays your limited company. If your contract is inside IR35, this same end client (or agency) will pay Income Tax and NICs (employer’s and employee’s) to HMRC
  • In the private sector, it’s your responsibility to determine whether your contract is inside or outside IR35. If the contract is inside IR35, your limited company will pay Income Tax and NICs to HMRC.

Often an agency will be used to work between the end client and your limited company (and worker), which can complicate the flow of funds and deductions for Income Tax and NICs.

The following illustrates how the process differs for private and public sector end clients:

Private sector (when an agency is involved)

  1. End client pays the agency in return for work done by the limited company
  2. Agency passes an agreed rate on to the limited company
  3. Limited company is responsible for determining IR35 status
  4. If inside IR35, the limited company pays a deemed employment payment to you. This payment will have Income Tax and Employees NICs deducted and paid to HMRC. The limited company will also have to pay any employers NI that’s due.

Public sector (when an agency is involved)

  1. End client pays the agency in return for work done by the limited company
  2. Agency is responsible for determining IR35 status
  3. If inside IR35, the agency pays Income Tax and NICs due to HMRC and passes the remainder to the limited company
  4. Limited company passes this amount on to you as either a tax free dividend or salary.

Need more IR35 advice?

Our handy IR35 guide goes through everything that will be assessed to determine whether or not you’re compliant with the law. Download it now and read it whenever and wherever you like!

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Written by Ross Bramble

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