3 Best IR35 Calculator to Calculate IR35 Cost

IR35, also known as the Intermediaries Legislation, is a UK tax regulation that covers off-payroll workers. It’s designed to catch so-called “disguised employees.” A disguised employee is a contractor who functions as a full-time employee. Individuals might do this to avoid taxes, or to make themselves more marketable.

The tax issue is a real one. Before IR35 rules, an individual could work as a contractor through a limited company. They could then pay a 20% corporate tax and claim business costs. Then, they could pay themselves with dividends to avoid National Insurance Contributions (NIC). In fact, this is still legal, if you’re a legitimate contractor.

For this reason, contracting work can be far cheaper than working under an umbrella company or as a regular employee. But it also provides an incentive for bad actors to pretend to be contractors when they aren’t. This is unfair to individuals in the same jobs who are working as regular employees.

What follows is a quick guide to IR35, and a few tools to help you determine the cost.

Here’s What We’ll Cover:

Who Pays for IR35?

When Does IR35 Apply?

Best IR35 Calculators

Key Takeaways

Who Pays for IR35?

The basic rules for IR35 have recently changed. Prior to 5 April, 2021, only public sector clients had to determine their contractors’ IR35 status. In the private sector, it was the contractors’ own responsibility. Now, both public and private entities need to determine their contractors’ status for themselves.

If a contractor is working outside IR35, HMRC may open an enquiry. This normally only happens when a contractor’s status raises red flags. If the contract turns out to fall afoul of IR35, the client will then be responsible for paying past due taxes and National Insurance.

This exposes your business to new liability. Where in the past, the contractor would be responsible for any back taxes, that responsibility now falls on you. For this reason, it’s wise to take out insurance if your business hires a lot of freelancers. Double-entry accounting tools can also help you out when tax time rolls around.

When Does IR35 Apply?

So, how do you know whether a given contractor falls inside or outside IR35? In general, it’s best to seek qualified outside advice if you’re not sure. But here is a short checklist.

A contractor falls inside IR35 if:

• You pay them by the hour or the day, instead of by the job
• You employ them on an exclusive or near-exclusive basis (they don’t have other major clients)
• You provide them employment benefits such as pension contributions
• They work in your place of business or with your equipment
• They do not have their own business entity

A contractor falls outside IR35 if:

• They have formed their own business entity and do not receive benefits from you
• You pay them by the project instead of by an hourly or daily rate
• They have multiple clients, or only form exclusive relationships for single, short projects
• They set their own hours, and can delegate tasks without receiving permission
• They supply their own equipment, and are free to work on their own premises

These are just general guidelines. Different jobs have different requirements. For example, a personal service company will need to come to your home to do their jobs. But they’re still contractors.

Best IR35 Calculators

Contractor Calculator

Contractor Calculator is a straightforward online calculator. It’s compatible with both daily and hourly pay rates. It also allows you to compare net take-home pay for inside- and outside-IR35 scenarios. Best of all, it’s free to use. On the downside, it’s only really useful for contractors.

PayStream

PayStream is similar to Contractor Calculator in many respects. It’s free, it’s geared towards contractors, and it works with both daily and hourly rates. But in addition to all that, it also allows you to factor in allowable expenses.

Allegis Group

Allegis Group is a Canadian firm that provides a number of services through their UK office. One of these services is payroll management. When you use Allegis’ services, your company becomes a part of their Pay As You Earn (PAYE) network. Allegis then pays out your contractors’ salaries on schedule, after taking all the necessary deductions.

Key Takeaways

IR35 compliance is a new thing, but it doesn’t have to be overcomplicated. If you use a payment service, you can offload the task of compliance. And if you obtain insurance, you’ll limit your liability for any accidental slip-ups.

If this article was helpful, there’s more where it came from. Take a look at our resource hub, and brush up on your business knowledge. There are dozens of articles across many subjects, so you’re sure to find plenty that applies to you.

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