The new tax rule and regulation that was implemented in April 2020 in order to minimize tax avoidance of large and medium-sized businesses is still confusing to many. It’s no surprise, since it delves into the grey area of self-employment in determining if the individual is truly self-employed or if they are running a Limited Company.
As tax avoidance or simple ignorance and confusion could lead to hefty fines, we are going to explain step-by-step how to determine if you or your contractor is eligible for IR35 or if they fall outside of that rule. The goal is to reduce and obliterate any sense of confusion so you can have the confidence to approach tax season.
As easy as 1,2,3
This new tax rule, IR35, is there to help understand whether or not an independent contractor is a glorified employee or a Limited Company. Depending on certain factors of this IR35 regulation, an individual who previously worked as a self-employed contractor may in all reality be an employee of an organization.
The key to determining if this individual is considered self-employed or not is communication. In the following 3 steps, you’ll see why communication is key in understanding how IR35 works.
Step 1: Decide if your contractor is an employee or a self-employed person
Once you’ve made this decision, it will be a lot easier to go through the IR35 process. As a side note, this only applies to owners of large or medium-sized businesses. Small businesses are exempt from IR35 and can ignore the new rules and regulations.
Step 2: Your Decision MUST be communicated to the fee-payer, who then in turn lets the contractor know
Whether or not your contractor is considered an employee or a self-employed individual must be communicated with your fee-payer. This individual will then inform the contractor of your decision. This is the foundation for the IR35 process.
Step 3: The Fee-payer will then make the appropriate tax deductions
Depending on your decision if the contractor is considered a Limited Company or an employee, the fee-payer will adjust their taxes and income payments accordingly. The income tax must be paid as determined by the individual’s new employment status, as well as deducting NIC. Later, this must be reported to the HMRC.
FD Capital understands that this process can be overwhelming and confusing, and offers its support in making it simple and easy to understand. FD capital does not want any organizations or businesses to face hefty fines simply due to a lack of understanding these new regulations. With the support of financial professionals who are well-versed in IR35, organizations can have peace of mind that their tax situation will be appropriately dealt with when hiring FD Capital.
No need to wonder whether or not your contractor falls under these requirements or not. FD Capital makes that determination quickly and easily through a form that is filled out shortly after hiring their professional staff. When looking to hire someone who can provide that relief and peace of mind during tax season, consider FD Capital.