Contracts inside IR35 and outside IR35. What are your options?

IR35 is a piece of tax legislation designed to target disguised employment for workers who provide their services to clients through their own limited company (known as an "intermediary" in the legislation). It uses a set of tests to find out if someone is genuinely in business on their own account or are working as a disguised employee of the client. Depending on the size of your client's organisation, it is likely that your client will be responsible for determining your IR35 status on any given assignment.

In this guide we'll answer some common FAQs asked by contractors, entrepreneurs or other business owners, so you know exactly what options you have available.

Contracts inside or outside IR35 - FAQs for contractors, business owners and entrepreneurs

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If I fall outside IR35, can I still work through my limited company?

The simple answer is yes. If you are currently working through your own limited company you can continue to do so in the future, providing your end client has advised that your contract is outside IR35.

If I fall inside IR35 for one short assignment in the future. Can I still fulfil the contract using my limited company?

Yes but you’ll need to ensure that you pay the correct PAYE and NI. These are commonly referred to as ‘deemed’ payments and they can be managed through your limited company but it involves more complex accounting arrangements and is less efficient.

What is the alternative to using the ‘deemed’ payment route if I’m inside IR35?

You can accept that assignment as an employee of your client or opt to use an umbrella company as your employer. You won’t need to close your limited company – you can operate a company and be an employee at the same time.

What’s the best solution for me if I have a mix of short-term work, some of which is inside IR35 and some of which is outside IR35?

You should discuss this with your Agency, but an optimum solution is to maintain your limited company for your outside IR35 work and choose a reputable umbrella company to work through your inside IR35 contracts.

What are the advantages of using an umbrella company for my inside IR35 engagements?

Choosing the right umbrella company gives you greater flexibility to handle short term assignments. Onboarding is quick and easy, you’ll get paid on time and be provided with payslips explaining how your pay and deductions have been calculated. All this and of course all your statutory rights as an employee.

I’m likely to be inside IR35 for my next contract which is scheduled to last for several months. I don’t want to close my limited company but does it matter that I won’t be trading through it?

No. Your limited company can stop trading until you need it again. You will still need to maintain all your filing requirements and submit Tax Returns.

I think I’m likely to be inside IR35 for the long term so don’t need my limited company anymore. How can I get the money out of it?

You should discuss this with your accountant. It may be beneficial to keep your company going and withdraw dividends over a period of time or close it and withdraw all the funds at once. A tax-efficient exit is usually possible, but you need to take advice tailored to your personal circumstances. PayStream’s Tax Advisory team can help with this review if required.

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Contracts inside IR35 and outside IR35.

What are your options?