Using your Limited Company when inside IR35

What is IR35?

An IR35 status determines the amount of tax and National Insurance Contributions (NICs) a contractor will need to pay, as well as whether they are eligible to claim back on certain expenses

It’s based on a contractor’s level of risk, liability and responsibility as a worker – if a contract shows that working practices are similar to that of a permanent employee, then an IR35 status will be ‘inside’, resulting in a worker having to pay more tax and NICs than one deemed ‘outside’ the legislation.

For more guidance on what might make a contractor fall ‘in’ or ‘out’ of IR35, read our What is IR35? A Guide to IR35 page.

How do the recent IR35 changes affect limited companies?

IR35 impacts those working in both the private and public sector, and before the 6th of April 2021 it was the contractor who would determine their own status.

Now it is the responsibility of the client to decide whether to place the contractor ‘inside’ of ‘outside’ of IR35 (even if they are provided through an agency), which means having to fill out a Status Determination Statement (SDS).

The government provides a Check Employment Status for Tax (CEST) tool to determine a worker’s employment status, using information based on:

• Details of the contract
• The worker’s responsibilities
• Who decides what work needs to be done
• Who decides when, where and how the work is done.

However, there are concerns surrounding the reliability of the CEST tool with many reporting that it has failed to deliver an accurate employment status determination.

If a contractor is deemed as being inside IR35, not only will they need to pay the same amount of tax and NICs as a permanent employee, but it will then be the company’s responsibility to deduct the income tax and NICs as if they were their employer.

There might also be issues with the worker disagreeing with the employment status given to them. If this happens, you’ll need to decide whether you feel their status is correct with your reasons why and provide a response within 45 days.

It is a legal requirement to set up a process to deal with any employment status determination disagreements.

What if I no longer want to work through a limited company?

These changes could become an issue for those working through their own limited company – IR35 now takes up more time and potentially creates more costs.

If this is the case for you, there are options, such as dormancy for example – this is where your company doesn’t trade for a certain period of time, or hold any assets (such as cash at the bank). This is something that we at Dolan can help you with.

For further advice and a look at your options should you find yourself in this position, read our Insolvency & Dissolution Service page.

If you are looking to continue working in a similar way but without the added responsibilities (and liabilities) that come with contracting through a limited company, there’s always the umbrella company route to consider.

This is something we can also help with via our award-winning umbrella company Contractor Umbrella. Read the Benefits of using an Umbrella page for further information.

We hope this page has answered some of your IR35 questions. Our team of experts are available to answer any queries you may have, so drop us a line on 01442 795 100 or email sophie.lewis@dolanaccountancy.com.