IR35 is a pivotal piece of UK tax legislation that’s crucial for overseas employers with staff in the UK.
IR35, in a nutshell, targets ‘disguised employment’.
It aims to prevent tax avoidance by workers and their hiring firms, especially when workers provide services through intermediaries like their own companies but essentially operate as employees.
This rule affects those whose working conditions resemble employment, requiring them to pay taxes akin to regular employees.
It’s vital for both the workers and their employers, including overseas firms with UK-based staff, to adhere to IR35 to avoid additional tax liabilities and penalties.
This compliance ensures workers who are effectively employees, albeit not in name, contribute similar taxes as standard employees.
Determining if you’re inside IR35 boils down to factors like how much control you have over the worker, if you can send someone else in their place, and if there’s an expectation of ongoing work.
The UK’s tax authority, HM Revenue & Customs (HMRC), offers a tool called CEST (Check Employment Status for Tax) to help you figure this out.
Equally, the experts at SMCO can determine where you and your employees should be paying more or less tax.
Your responsibilities as an employer
If you’re an overseas employer with staff in the UK IR35 might apply to you, and it’s your job to figure out if it does.
If you have a ‘deemed employer’ status in the UK, you’re on the hook for Withholding Taxes and National Insurance Contributions, just like any other UK employer would be.
Non-compliance can lead to steep penalties, not to mention a tangled mess of back taxes and strained relations with HMRC.
Each contract with your UK-based staff needs a hard look by tax advisers to determine its IR35 status.
One size does not fit all and what works for one contract might not work for another.
Managing IR35 compliance and best practices
Handling IR35 isn’t rocket science, but it does need diligence.
Keep your records straight, stay on top of each contract, and when in doubt, get professional advice from a tax adviser who specialises in UK tax regulations.
Some employers use umbrella companies as a workaround.
These companies essentially become the employer on record, handling all the tax nitty-gritty. It’s an option, but not always the right one and should be discussed with your adviser before you implement it.
The SMCO view
IR35 might seem like just another hoop to jump through, but it’s a hoop that can trip you up if you’re not careful.
Treat it with respect, understand your obligations, and take action to comply or you could face significant issues down the line.
Our view is that the simplest way to stay compliant is to engage the services of a qualified and experienced international tax adviser.
Not only can they ensure you remain compliant with UK law, but they can also ensure you neither pay too much nor too little on your taxes.
