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Off-payroll means getting paid for work through ways other than through a salary (otherwise known as a payroll). For example, you’re classed as off-payroll if you work as a self-employed freelancer or provide services through your own limited company. This is because you are paid for your work through an invoice, not via the company’s payroll. 

If you’re working off-payroll for a client, or you hire contractors for your business, then it’s important to know the rules surrounding tax and IR35 so that you can avoid potential penalties and legal issues.

What is IR35?

IR35 is a type of legislation that allows HMRC to collect additional taxes if they consider that a contractor/freelancer could be, in fact, a ‘disguised employee.’ 

The purpose of IR35 is basically to make companies pay the right amount of tax, such as Income Tax and National Insurance. Off-payroll contractors pay less NI than what they’d pay if they were employed by their clients. IR35 was introduced to stop both companies and contractors from exploiting this.

Off-payroll & IR35: What you need to know

Simply being off-payroll doesn’t mean that you’re not an employee. IR35 states that if you’re an off-payroll worker and  treated like an employee, your client must place you on the payroll. You then pay employment taxes for your work.

If you’re off-payroll and are unsure whether you’re a disguised employee for one of your clients, ask yourself:

  • Do you have to do the work personally, or can they send someone else instead?
  • Do you have to carry out any task that an employee would normally do?
  • Does your client get to decide how, when, and where you do the work?

If the answer is yes to any of these questions, then it’s likely you are in the eyes of HMRC. To double-check the relationship between you and your client, you can use the CEST tool from HMRC.

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