Can IR35 Contractors Still Work Through A Limited Company? Explained

Are you an IR35 contractor wondering if you can still work through a limited company? The answer is yes, but with some changes. The UK government’s off-payroll working rules, also known as IR35, came into effect on April 6, 2021. These changes are forcing many contractors to review their options.

If you work as a contractor through a limited company, you can still operate through your company if you are under IR35. However, you may be better off using an umbrella company, going PAYE, or becoming a sole trader. If you are deemed to be inside IR35, you are effectively an employee for tax purposes.

In this article, we will explore the benefits of working inside IR35 via your limited company, and what changes you may need to make to your business structure. We will also provide you with some important facts about off-payroll working rules, so you can make an informed decision about your contracting options.

Understanding IR35 and Contractors

If you are a contractor operating through a limited company, you may have heard of IR35. IR35 is a set of tax rules that apply to contractors and freelancers who work for clients through an intermediary, such as a limited company. The rules are designed to ensure that individuals who work in a similar way to employees pay broadly the same amount of tax and National Insurance contributions (NICs) as employees.

The off-payroll working rules, also known as IR35 rules, were introduced in April 2000. They were designed to stop workers from setting up limited companies to provide their services to clients, but then operating as disguised employees, paying less tax and NICs than they would have done if they were employed.

If you are a contractor, it is important to determine your employment status for tax purposes. Your employment status will determine whether IR35 applies to you. If you are inside IR35, it means that you are considered to be an employee for tax purposes, and you will have to pay employment taxes, such as Income Tax and NICs, on your earnings. If you are outside IR35, you will be taxed as a self-employed person, and you will have more flexibility in how you structure your business.

It is important to note that the employment status for tax purposes is not the same as the employment status under employment law. The two are different, and you may be considered an employee under employment law, but not for tax purposes.

If you are inside IR35, you may wonder whether you can still work through a limited company. The answer is yes, but you will have to pay employment taxes on your earnings. You will also have to abide by the strict business expense rules and cannot claim things such as regular travel to and from work or subsistence.

In summary, IR35 is a set of tax rules that apply to contractors and freelancers who work for clients through an intermediary, such as a limited company. Your employment status for tax purposes will determine whether IR35 applies to you. If you are inside IR35, you will have to pay employment taxes on your earnings and abide by strict business expense rules.

Limited Companies and IR35

If you are an IR35 contractor, you may be wondering if you can still work through a limited company. The answer is yes, you can. However, there are some things you need to be aware of.

Firstly, if your contract is deemed to be inside IR35, you will need to pay the correct PAYE tax and National Insurance (NI) for any contract which is inside IR35 because you are, in the eyes of HMRC, an employee. You can, however, manage this through your limited company.

As a limited company director, you will need to ensure that you are following the rules and regulations set out by HMRC. This includes ensuring that you are paying the correct amount of corporation tax and that you are complying with the rules around limited liability.

If you are a small business or a personal service company (PSC), you may find that working through a limited company is the best option for you. However, you will need to ensure that you are meeting all the requirements set out by HMRC.

It is important to note that if you are deemed to be inside IR35, you may be better off using an umbrella company, going PAYE or becoming a sole trader. You should speak to an accountant or tax specialist to determine the best option for you.

In summary, working through a limited company is still an option for IR35 contractors, but it is important to ensure that you are following all the rules and regulations set out by HMRC. If you are unsure, seek professional advice.

Tax Implications of IR35

If you are a contractor affected by IR35, you will need to consider the tax implications of working through a limited company. The off-payroll working rules mean that if you are deemed to be an employee for tax purposes, you will need to pay PAYE tax and National Insurance Contributions (NICs) on your income, just like an employee.

If you are working through a limited company, you will need to ensure that you are paying yourself a salary that is subject to PAYE tax and NICs. You will also need to pay corporation tax on any profits your company makes. However, you can still pay yourself through dividends, which are not subject to NICs.

It is important to note that if you are inside IR35, you will not be entitled to the same tax allowances as a self-employed person. You will also not be able to claim expenses in the same way as a self-employed person, as you will be deemed to be an employee for tax purposes.

Your tax status will also affect how your deemed employment payment computation is calculated. If you are inside IR35, your deemed employment payment will be calculated based on your income, less any allowable expenses. If you are outside IR35, you will be able to claim a wider range of expenses, which will reduce your deemed employment payment.

It is important to ensure that you are fully aware of the tax implications of IR35 before deciding whether to work through a limited company. You should also seek advice from a qualified accountant or tax specialist to ensure that you are meeting all of your tax obligations.

Inside and Outside IR35

If you are a contractor working through a limited company, you may be wondering whether you can still operate through your company if you fall under IR35. The answer is yes, you can still operate through your limited company if you are inside IR35, but there are some things you need to know.

Firstly, let’s define what is meant by “inside” and “outside” IR35. If a contractor is deemed to be inside IR35, it means that they are considered to be an employee for tax purposes, and as such, they are subject to PAYE tax and National Insurance contributions. If a contractor is deemed to be outside IR35, it means that they are considered to be self-employed for tax purposes, and as such, they are not subject to PAYE tax and National Insurance contributions.

To determine whether a contractor is inside or outside IR35, a Status Determination Statement (SDS) must be completed. This statement will assess the nature of the working relationship between the contractor and the client, taking into account factors such as control, substitution, and mutuality of obligation.

If a contractor is deemed to be inside IR35, they may still be able to work through their limited company, but they will need to pay themselves a salary through PAYE and make National Insurance contributions. They will also need to deduct income tax and National Insurance contributions from their salary.

It’s worth noting that the Check Employment Status for Tax (CEST) tool provided by HMRC can be used to determine whether a contractor is inside or outside IR35. However, it’s important to remember that the tool has been criticised for being inaccurate in some cases.

In summary, if you are working inside IR35, you can still operate through your limited company, but you will need to pay yourself a salary through PAYE and make National Insurance contributions. It’s important to ensure that you have completed an accurate SDS and to seek professional advice if you are unsure about your IR35 status.

Impacts on Public and Private Sectors

If you are an IR35 contractor, the changes to off-payroll working rules (also known as IR35) that came into effect in April 2021 have had a significant impact on the public and private sectors. The reform was introduced to ensure that contractors working through a limited company pay the same income tax and National Insurance contributions as employees.

Public Sector

The changes to IR35 were first introduced in the public sector in 2017. Public sector organisations are now responsible for determining the employment status of contractors. If a contractor is deemed to be inside IR35, they will be taxed in the same way as an employee. This means that the public sector organisation is responsible for deducting income tax and National Insurance contributions from the contractor’s fees and paying them to HMRC.

Private Sector

The changes to IR35 were extended to the private sector in April 2021. Private sector clients are now responsible for determining the employment status of contractors. If a contractor is deemed to be inside IR35, they will be taxed in the same way as an employee. This means that the client is responsible for deducting income tax and National Insurance contributions from the contractor’s fees and paying them to HMRC.

Small Non-Public Sector Organisation

Small non-public sector organisations are exempt from the changes to IR35. If a small non-public sector organisation meets at least two of the following conditions, they are exempt from the changes:

• Annual turnover of less than £10.2 million
• Balance sheet total of less than £5.1 million
• No more than 50 employees

Public Sector Clients

Public sector clients are required to provide a Status Determination Statement (SDS) to the contractor and any party in the labour supply chain. The SDS must explain the determination of the contractor’s employment status and the reasons for the determination. If the contractor disagrees with the determination, they can challenge it using the client’s disagreement process.

2017 Reform

The 2017 reform to IR35 in the public sector has been seen as a success by HMRC. The reform has resulted in an increase in tax revenue and has helped to ensure that contractors working through a limited company pay the same income tax and National Insurance contributions as employees. The extension of the changes to the private sector in 2021 is expected to have a similar impact.

Overall, the changes to off-payroll working rules have had a significant impact on contractors working through a limited company. It is important for contractors to understand their employment status and to ensure that they are paying the correct amount of tax and National Insurance contributions.

Contractual and Working Arrangements

As an IR35 contractor, you may wonder if you can still work through your limited company. The answer is yes, but there are some things you need to consider.

Firstly, you need to make sure that you are paying the correct PAYE tax and NICs for any contract that is deemed inside IR35. This means that you will inevitably earn less money than if you were outside IR35, unless you can negotiate an increase in your day rate.

Secondly, you need to manage your working arrangements carefully. If you are working on multiple contracts, only one of which is inside IR35, you can manage this through your limited company. You can use the IR35 payroll option in your limited company accounting service to ensure that you are paying the correct taxes for each contract.

It is also important to consider your contractual arrangements. If you are working for an end client, you need to make sure that your contract reflects your working arrangements. Your contract should clearly state that you are operating as a limited company contractor and that you are responsible for paying your own taxes.

If you are working through an agency or a supply chain, you need to make sure that your contract reflects your status as a limited company contractor. You should ensure that your contract with the agency or supply chain is separate from your contract with the end client, and that it clearly states that you are responsible for paying your own taxes.

Overall, if you are an IR35 contractor, you can still work through your limited company. However, you need to pay the correct taxes and manage your working arrangements and contractual arrangements carefully. By doing so, you can continue to work as a contractor and enjoy the benefits of operating through a limited company.

Alternative Working Models

If you are an IR35 contractor, you may be wondering if there are alternative working models available to you. The answer is yes, there are several options available depending on your circumstances and preferences.

Umbrella Company

One option is to work through an umbrella company. This means that you would become an employee of the umbrella company, and they would handle your payroll, taxes, and National Insurance contributions. While this may seem like a good option, you should be aware that you will not have the same level of control over your finances as you would if you were working through your own limited company.

Sole Trader

Another option is to operate as a sole trader. This means that you would be self-employed, and you would be responsible for your own taxes and National Insurance contributions. While this may be a good option if you are just starting out, you should be aware that you will not have the same level of protection as you would if you were operating through a limited company.

Self-Employment

If you are self-employed, you will be responsible for your own taxes and National Insurance contributions. While this may be a good option if you are experienced and have a good understanding of tax law, you should be aware that you will not have the same level of protection as you would if you were operating through a limited company.

Direct Employment

Another option is to work as a direct employee of a company. This means that you would be an employee of the company, and they would handle your payroll, taxes, and National Insurance contributions. While this may be a good option if you are looking for more stability, you should be aware that you will not have the same level of control over your finances as you would if you were working through your own limited company.

Permanent Employment

Finally, you could consider permanent employment. This means that you would be a permanent employee of a company, and they would handle your payroll, taxes, and National Insurance contributions. While this may be a good option if you are looking for more stability, you should be aware that you will not have the same level of control over your finances as you would if you were working through your own limited company.

Overall, there are several alternative working models available to IR35 contractors, each with their own advantages and disadvantages. It is important to carefully consider your options and choose the one that best suits your needs and preferences.

Financial and Legal Implications

As an IR35 contractor, you may be wondering about the financial and legal implications of working through a limited company. Here are some important things to consider:

National Insurance Contributions (NICs)

If you are deemed to be inside IR35, you will need to pay the correct PAYE tax and NICs for any contract under IR35. This means that you will be responsible for paying both the employer and employee NICs on your deemed payment. However, if you work through an umbrella company, your employer NICs will be covered by the umbrella company.

Control and Liability

If you work through a limited company, you will have more control over your finances and business affairs. However, you will also be responsible for any liabilities that arise from your business activities. This means that you will need to have appropriate insurance and take steps to protect your brand and reputation.

Deemed Payment and Profits

If you are inside IR35, you will be deemed to receive a payment from your client that is equivalent to an employee’s salary. This means that you will not be able to claim certain expenses or deductions that are available to limited company contractors who are outside IR35. As a result, your take-home pay may be lower than if you were working outside IR35.

Autonomy

Working through a limited company can give you more autonomy and control over your work. However, if you are inside IR35, you may have less flexibility and be subject to more restrictions than if you were working outside IR35.

In summary, working through a limited company as an IR35 contractor can have both financial and legal implications. It is important to understand your responsibilities and take steps to protect your business and your reputation. If you are unsure about your IR35 status or need advice on how to manage your finances, it is recommended that you speak to a qualified accountant or tax advisor.

Rights and Benefits

As an IR35 contractor working through a limited company, you may wonder what employment rights and benefits you are entitled to. While you may not receive the same benefits as a permanent employee, you still have certain rights and benefits.

Employment Rights

As an IR35 contractor, you are not considered an employee, which means you do not have the same employment rights as a permanent employee. However, you still have certain rights, including:

• Protection against discrimination
• The right to a safe and healthy working environment
• The right to be paid for the work you do
• The right to receive the National Minimum Wage
• The right to take breaks during your working day
• The right to not work more than 48 hours per week (unless you opt-out)

Sick Pay

As an IR35 contractor working through a limited company, you are not entitled to statutory sick pay. However, you may be able to claim sick pay if your contract with your client includes a provision for it. Alternatively, you may be able to claim benefits such as Universal Credit or Employment and Support Allowance.

Employment Benefits

As an IR35 contractor working through a limited company, you are not entitled to employment benefits such as pensions, holiday pay, or maternity pay. However, you may be able to set up your own pension scheme and pay into it using your limited company. You may also be able to take time off for holidays, but you will not be paid for this time off.

In summary, as an IR35 contractor working through a limited company, you have certain employment rights, but you are not entitled to sick pay or employment benefits. However, you may be able to claim sick pay or benefits if your contract includes a provision for it. Additionally, you may be able to set up your own pension scheme and take time off for holidays, but you will not be paid for this time off.

Expenses and Allowances

As an IR35 contractor, you may wonder if you are still eligible for expenses and allowances when working through a limited company. The answer is yes, but with some limitations.

Under the new off-payroll working rules, expenses allowance is now available only in limited circumstances. You can only claim for expenses that are deemed necessary and reasonable for the job you are doing. This means that you cannot claim for expenses that are not directly related to your work.

It is important to note that business expense rules still apply to IR35 contractors working through a limited company. You can claim for expenses such as travel, accommodation, and equipment, as long as they are incurred wholly and exclusively for business purposes.

However, it is crucial to keep accurate records of all your expenses and ensure that they are properly supported by receipts and invoices. Failure to do so may result in penalties from HMRC.

In addition, it is important to note that if you are deemed to be inside IR35, you will not be able to claim tax relief on expenses. This means that you will have to pay tax on all your income, including expenses.

Overall, while expenses and allowances are still available for IR35 contractors working through a limited company, it is important to understand the limitations and comply with the rules and regulations set by HMRC. Keeping accurate records and seeking professional advice can help ensure that you stay on the right side of the law.

Navigating IR35 Reforms

If you’re an IR35 contractor, you may be wondering how the recent IR35 reforms affect your ability to work through a limited company. The short answer is that it’s still possible, but there are some important considerations to keep in mind.

Firstly, it’s important to understand the IR35 reform and how it affects you. From April 2021, medium and large-sized companies are responsible for determining the IR35 status of their contractors. This means that if you work for a medium or large-sized company, you’ll need to provide them with a Status Determination Statement (SDS) outlining your IR35 status. If you’re deemed inside IR35, you’ll need to pay tax and National Insurance contributions as an employee, rather than as a self-employed contractor.

If you’re inside IR35, working through a limited company may not be the most tax-efficient option. However, there are still some benefits to operating through a limited company, such as increased flexibility and control over your finances. You’ll also be able to claim expenses and take advantage of tax allowances.

To navigate the IR35 reforms, it’s important to work with an experienced accountant who can help you understand your IR35 status and determine the best way to operate your business. Your accountant can also help you with IR35 payroll, ensuring that you’re paying the correct amount of tax and National Insurance contributions.

Overall, while the IR35 reforms have made it more challenging for contractors to operate through a limited company, it’s still possible with the right support and advice. By working with an experienced accountant and staying up-to-date with the latest IR35 guidance, you can continue to operate your business in a tax-efficient and compliant manner.