One thing every contractor has to decide is which legal structure to use. The simplest choice is to operate as a sole trader, which is probably why there are an estimated 3.4 million sole traders operating in the UK. The limited company option is also popular, with an estimated 1.9 million operating today in the UK. So, what’s the difference between these two options, and which is better for your contracting business?
Towards the end of August, HMRC sent letters to approximately 1500 contractors who had worked for GlaxoSmithKline (GSK) during the tax year 2018/19. The letters stated:
“It is our view that the contract between your PSC and GlaxoSmithKline (GSK) comes under the off-payroll working rules ‘IR35.’”
The government has now released further detail about the reform of IR35 in the Private Sector, which means we know a little more about where responsibility will lie after April. In this article, we’ll explain who the various parties are and what their responsibilities will be.
A Contractor's Guide to Demonstrating You're Outside IR35: Click here to download>>
As most UK contractors will be aware by now, the much talked-about private-sector IR35 reform is due to take place in April 2020, and will mean that contractors will no longer be responsible for determining their own IR35 status. This responsibility will pass instead to their end client, so anyone who engages contractors, unless they class as a small private company, will have to assess whether those contractors fall inside or outside IR35.
IR35 was introduced in 2000 and is aimed at ensuring that only contractors genuinely in business on their own account are able to take advantage of tax planning opportunities. If in effect, you are a temporary employee of your end client you will be taxed as a “deemed employee”.
