Contractor? All you need to know about IR35

You’re likely aware that the age of the contractor is coming to a close. The public sector has been required to treat contractors as employees since 2017, except in unusual circumstances. The same is coming to the private sector next year. In our industry, this is big news as tech companies have lived, thrived and sailed away on the back of IT contractors.

At the moment, many contractors have their own limited companies and pay themselves a salary and dividend through that vehicle, which is tax efficient for them. HMRC has ruled that this is not a practice to be encouraged and, if in all other respects the contractor is an employee, then they need to be taxed as an employee via PAYE. This is known as ‘being inside IR35’. Consequently, contractors in IR35 need to be on the payroll of an ‘umbrella company’.

Hackney Council can now only employ contractors inside IR35.

The umbrella company acts as the contractor’s employer and taxes them for PAYE and National Insurance. Most recruitment agencies have an umbrella that they can suggest to contractors but it is wise to shop around as some umbrellas are more competitive than others.

One of the bonuses of being inside IR35 is that contractors are entitled to Hackney’s annual leave of 27 days plus bank holidays every year. So you will continue to be paid your daily rate while relaxing pool-side. Or, the umbrella will bump up your pay packet each month to allow for days off. Hackney has waived the legal 12 weeks before these entitlements kick in so contractors are eligible as soon as they start the post.

This is IR35: the abridged version. For full deets, see the government website.