The new HMRC guidelines are complex, but in essence boil down to one crucial factor: do you have employed or self-employed status, and does this status apply to every new contract you undertake?
- Employed: If you earn your income through employed terms (as judged by HMRC), you HAVE to pay tax through the PAYE system as an employee.
- Self-employed: If you are self-employed, can prove your self-employed status and can also prove all your work does not fall within the scope of IR35, you can pay yourself using dividends.
Many contractors who might consider themselves to be self-employed are, in the eyes of the 'taxman', very much employed. And the system is further complicated, because some contracts may place you as an employee, while very similar ones will place you as self-employed. And to make things even more confusing, it is also possible that some contracts that start out with you having self-employed status, may evolve into you being classed an employee.
At present, employee/self-employed status is often a very fine judgement. And whilst the distinction may not seem important, getting it wrong places contractors, clients and agencies at risk of investigation, prosecution and penalties.
Fortunately, because Tarpon members always have employed status – with full HMRC approval – they do not face any of these risks.
To speak to one of our tax experts call 0845 643 1580.