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IR35 - Medium to High Risk

If you are in either the ‘high risk’ band or the ‘medium risk’ band, there is a risk that HMRC will check whether IR35 applies to you. And this risk is not low.

So you need to decide whether IR35 applies to any of your engagements – especially if you are in the ‘high risk’ band. Suppose IR35 applies to you. Then IR35 may treat your intermediary as if it had made a payment triggering PAYE and NIC – that is, your intermediary may have to account for actual PAYE and NIC on a deemed payment.

Your intermediary can reduce this deemed payment if it pays employment income under PAYE and NIC before the end of the tax year (5 April). If it accounts for enough PAYE and NIC under the normal rules, it will reduce the deemed payment to nil.

If the deemed payment is not reduced to nil, then your intermediary will have to account for actual PAYE and NIC on a deemed payment.

So, if you want to reduce the deemed payment to nil, you need to work out how much employment income your intermediary needs to pay under the normal PAYE and NIC rules.

This means you need to know:

  • the IR35 income for the tax year
  • the allowable deductions for IR35 purposes.

For IR35 purposes, you work out the income on a cash received basis and the allowable deductions on a cash paid basis – not an accruals basis.

And employment income paid under PAYE and NIC will only reduce the deemed payment if it is paid before the end of the tax year. So, you need to arrange this before it is too late.

If HMRC check whether IR35 applies to you, and you have decided that it does not, you will have to tell them why you think it does not!

So based on my IR35 Business Entity Test results which option is the best for me? Going with an Umbrella Company or going with my own limited company? Find out more.