Published On: Sat, May 11th, 2024
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Freelancers could be taking home 30% more with this one simple trick | Personal Finance | Finance

Freelancers, contractors and consultants working via their own limited companies have been advised to to check their IR35 status as they could boost their take home after tax by up to 30 percent.

Following changes to the IR35 rules, businesses engaging freelancers and contractors are now responsible for setting IR35 status, which determines if a worker pays tax as a self-employed individual or should be classed as an employee for tax purposes.

The complex nature of the IR35 rules it’s not uncommon for businesses to incorrectly determine IR35 status or insist that all contractors are engaged on the payroll and subject to employment taxes, irrespective of whether they are genuinely self-employed.

According to IR35 compliance expert, Qdos, this issue is known as ‘disguised employment’ and can have a huge impact on the take home pay of freelancers.

Putting forward evidence to a client that supports outside IR35 status can be decisive in ensuring that a correct determination is made initially or challenging an incorrect status decision.

Seb Maley, Qdos CEO, said: “The difference between a contractor working outside of IR35 or on the payroll in whatever capacity is significant. For instance, if a business decides that your contract belongs inside IR35, you could take home anywhere up to 30 percent less after tax.

“So it’s worthwhile that any genuine contractor does whatever they can to demonstrate to their client that they’re self-employed.

“While some contracts do belong inside IR35, we’re still finding that far too many contractors are being misclassified by their clients and are effectively forced inside IR35.

“The financial hit contractors take in this scenario is huge, which is why it’s worth exploring ways to safeguard and effectively prove your outside IR35 status.”

Mr Maley continued: “Granted, some clients may have already made up their minds and won’t reconsider their stance.

“However, as the message starts to get through that IR35 reform is manageable, we’re noticing that more businesses are open to rethinking their position.

“While all of the above is important for contractors working with medium and large businesses, those engaged by small businesses remain responsible for determining their IR35 status and liable for any mistakes.

“With this in mind, being able to demonstrate your compliance remains vital in the event that HMRC launches an investigation.”

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