As a UK contractor, you will be aware of a number of responsibilities and obligations, which come with running your own limited company. There are a number of legislations, which have an effect on UK contractors, and it can all get a little mind-boggling sometimes. So here is a list of legislations, which could affect you during your contracting career, as well as how they fit together.
IR35/the Intermediaries Legislation
This is probably going to crop up the most in your contracting life, and it is a piece of tax legislation implemented to tackle the abuse of using an intermediary (such as a limited company) for tax benefits. Essentially those working like permanent employees of their end clients should be taxed like an employee, so if they are still operating in this manner but also gaining the tax benefits of using a limited company, they are going to be in the bad books at HMRC’s headquarters.
This may still affect the sincere contractor running a genuine business, as how HMRC determines who is and who isn’t working like an employee, can be a little ambiguous. All contractors operating through a limited company must take IR35 into consideration (unless the MSC legislation applies - see below) and it is up to you to ensure that your working arrangements are in line with the legislation. You can find endless information and advice about the IR35 legislation on our website or by speaking to one of our advisors over the phone.
MSC/ the Managed Service Companies Legislation
This is IR35’s cousin and if the MSC legislation applies to you, then you will not need to apply IR35. The MSC legislation was introduced due to the use of “composite companies”, whereby one limited company was acting for a number of contractors to provide them with the ability to take dividends instead of applying PAYE, and therefore pay less tax, without any of the troubles of actually managing their own company. There is no problem in using a composite company (umbrella companies for example) as long as you are applying PAYE to all of your income (minus some allowances). We have written a number of articles on the subject, otherwise our staff will be able to assist. There is also formal guidance to be found on HMRC’s website with the details on when the legislation applies. If it doesn’t, then you will need to consider IR35.
AWR (Agency Workers Regulations)
This legislation should have little impact on you as a contractor. The regulations were introduced to create a minimum standard to the recruitment industry and thus protect the workers who use them, with which means that there is a degree of entitlement to more rights similar to employees than before, regardless of how you operate.
Conduct Regulations (The Conduct of Employment Agencies and Employment Businesses 2003)
Your agency may ask you to “opt out” of the regulations, meaning that you agree for the regulations not to apply to you. There are benefits for and against opting out and there may be implications under IR35 for not opting out, either way you cannot be forced to do so. Please speak with one of our contract experts if you require some further advice.
False Self-Employment Legislation
A new legislation, also known as the Onshore Intermediaries Act, came into play last year. The legislation is designed to continue the battle against, as you might have guessed, false self-employment. It enforces a rule that recruitment agencies that place self-employed workers must ensure that the worker is legitimately self-employed. The manner in which this is done is rudimentary in comparison to the status tests of the IR35 legislation, with little more than deciding whether you are supervised or not. If the agency determines that you are not legitimately self-employed by the basic tests, then they will be obliged to apply PAYE prior to paying you or you will be forced to seek other trading methods. This legislation only effects those working as sole traders, but it is expected that the legislation will urge more into opening limited companies where IR35 or MSC will respectively apply, or umbrella companies where PAYE is also applied to your income before you receive it.
As a UK contractor, you will mostly stumble over the above legislations, and as they can generally have some serious consequences for ignorance, it is important to get to grips with which the ones which will affect you. As well as those mentioned above, you will also need to adhere to the rules of other laws with respect to employment, health and safety, VAT, and so on.
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