A Guide to IR35

Inside Determinations & Payments

Additional Questions

IR35 has been around for two decades and was designed by HMRC to make sure external workers are paying the correct level of tax. Also known as the ‘intermediaries legislation’, IR35 is UK tax legislation that is relevant when a worker delivers their service through a Limited Company that they own a material interest in. IR35 is only relevant if you are operating through a Limited Company, it is not relevant to external workers operating as a Sole Trader, or through an Umbrella.

Using specific ‘IR35 determination’ criteria, HMRC wish to identify workers who are employed for tax purposes were it not for their use of an intermediary, such as a Limited Company setup, in the supply of their service.

These criteria are tested by both parties (the hiring company and the worker) answering and agreeing to a set of questions, which HMRC then uses to decide whether or not the payments should be taxed or not.

As an external worker, it means you’ll have to be aware of, and maybe change, how you get paid. From April 6th 2021, all freelance projects that are engaged through a Limited Company need to be tested against the IR35 regulations.
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In preparation for this, you will need to complete some IR35 questions in your Worksome account, which will be used as part of any IR35 determinations on your contracts.

Payment for projects that are ‘Inside IR35’ will need to be taxed at source, with PAYE and National Insurance Contributions (NICs) taken from the worker's billed rate.

Those that are ‘Outside IR35’ will be paid gross, and as such will be able to determine when and how their company profits are distributed, which might allow them to benefit from efficient tax planning.

It’s the law, so it’s quite important everyone complies. Hiring companies will have to complete an IR35 assessment for every freelance project, and workers will have to assist them by answering a few questions about their work environment, all of which should be completed before the assignment begins. It's another step in the process, but Worksome makes this super easy for everyone.

No, the IR35 reforms do not apply to all of your contracts as the HMRC state that if your End Client does not satisfy at least two of the following conditions, then the reforms will not apply and you will continue to be responsible for determining your own IR35 status:

If your End Client is part of a larger group of companies then the aggregate position of the group must be considered when applying for the ‘small companies’ exemption. This could mean that your End Client is defined as small, as per the Companies Act 2006 definition, but they will still need to apply the IR35 reforms.”

For more on these exemptions, head to the HMRC website guidelines here.

It can be pretty big. From the 6th of April, the main risks of non-compliance will be transferred away from you and moved up to the supply chain. HMRC will be keen to claw back any tax that it thinks it’s owed, which could mean a long lawsuit, a lot of stress, and a hefty fine. All of this will be aimed at the business that engaged you and/or your hirer.

We’ll make it simple and fair. With Worksome, when relevant companies (large enough to have to adhere to IR35) post their projects, they will each be determined as ‘Inside IR35’ or ‘Outside IR35’ so you know what you’re getting into before you accept any contract.

Questions to make the IR35 determination will be answered by both the hiring company and you (the worker) in the Worksome platform. Worksome does not answer these questions for either party.

Once again, ‘Outside IR35’ will be paid as usual, and ‘Inside IR35’ incurs deductions of PAYE tax and NICs to your pay.

If you are a worker operating through a Ltd company, you will need to complete some IR35 questions in your Worksome account, which will be used as part of any IR35 determinations on your contracts. Follow our guide here, to add your settings.

If you're offered a contract in Worksome that is deemed inside IR35, then you'll be paid "PAYE" through Worksome. This means we'll be responsible for deductions of PAYE tax and NICs to your pay.
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To accept your Inside IR35 contract, you'll first need to complete some settings in your account.
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Firstly (if you haven't already) you'll need to confirm your agreement to be paid PAYE. You can do this by clicking on the button called Freelancer Settings as shown below:

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This will then unlock some PAYE settings for you to complete. You'll need to fully complete these settings, in order to receive any payments on this contract:
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In your PAYE settings, you'll see you have a Starter Form question to answer, to let us know your current employment status.
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If you are unsure of your starter form answer, we would recommend speaking with HMRC or your accountant to confirm. Kindly note that what you input here will be used on your payroll with us, and will affect your tax deductions, because you will be assigned a tax code based on your answer. So if unsure, check with the experts just to be sure! 📝

Your tax code dictates how much income you can earn before paying tax and is therefore very important to ensure the right amount of tax is deducted from your payments. We will infer a tax code for you based on your starter form answer so that for the time being you can receive your payments until HMRC potentially issues you a new or corrected code. Any discrepancy with the amount of tax you pay will be corrected when HMRC issue a new tax code for you. Going forward you can always refer to your latest Worksome payslip for your most recent tax code.
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If you are offered a contract in Worksome that is deemed inside IR35, then for any bills submitted on this contract, you will be paid PAYE through Worksome.

All payments will be made to the entity you use to engage Worksome. This means if you are engaging through your LTD on a contract, then we must pay you in to your LTD bank account. This will be the case for any contracts deemed inside IR35 on Worksome.

Employment taxes/NIC’s will be taken from your income, just like an employee, but the contracting party is still your Ltd company so this is where payments will be made to. This is technically known as ‘employed for tax purposes and HMRC recognise us as your ‘deemed employer’.

Don’t worry as you will not be taxed twice. When withdrawing the income from your company it should be taken as a ‘deemed salary’ with no tax or NIC’s applied. This ensures the business costs are the same as your business expenses so with no profits to speak of, there is no corporation tax to pay.

Your accountant will be able to provide greater detail on this and fully explain the concept. But to assist you further, HMRC has provided guides in the Employment Status Manuals, which you can find below:
​https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm10024
​https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm10030

Any worker operating through an LTD that is VAT registered should invoice for VAT. You need to tell us whether you are or are not subject to VAT in your Worksome business entity settings below, and we then will automate this setting onto any future bills you submit in Worksome:
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If you are on an IR35 payroll with us and advise that your LTD is registered for VAT, Worksome will then pay you the net amount of your bill (after employment taxes/NIC’s/app levy are deducted), plus the full VAT amount.
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You will still submit your bills as normal. But how it is paid to you will differ slightly, as it will be split into 2 payments:
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- The VAT amount will be paid into your Worksome balance (as it's not subject to any payroll deductions)
- The non-VAT amount is paid directly to your bank account (after deductions)
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If you have any queries on this, please don't hesitate to contact Worksome Support.

If you're payrolled through Worksome, we will be your employer.

If you are working on a contract in Worksome that is deemed inside IR35, you would be paid PAYE by Worksome which means we would be responsible for deducting employment taxes & NI contributions on your payments - the standard tax brackets for your employee deductions can be found on HMRC's website.
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Depending on your client, we may need to deduct further employer costs of 14.3% from your Charge Rate. This calculates as the Employers NI at 13.8% and Apprenticeship Levy (AL) at 0.5% and would in effect reduce your Booking Fee. These standard PAYE deductions, as per HMRC, are the same deductions you would incur with any Umbrella company.
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Whether or not we have to deduct these employer costs, will depend on the client you are working with. Some clients are willing to cover the cost of the employer's contributions, and others are not. So it will entirely depend on your client and their approach to their Inside IR35 contracts.
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You will have a full view of the IR35 determination result, and estimated deductions before you accept the contract. You'll receive a 'KID' (key information document) with any Inside IR35 contract offers, which will provide you with an estimated financial breakdown from your bill rate to an anticipated net pay, and will detail all expected deductions as above:

You will be paid as per the contract payment terms with your client. You can find this in the job conversation on the right hand side of the screen
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Apprenticeship Levy is a tax charged to all companies whose annual gross payroll amount is greater than £3M. As Worksome fulfils these criteria we have to charge this tax.

You can submit your expenses to your client in the usual way. See our guide to submitting expenses here.
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When you are on payroll, you will be paid gross for any expenses, since these are not subject to any tax deductions.

Not by Worksome or the client as you are still employed by your PSC/limited company so it will be liable for your holiday allowance.

Yes. Under any circumstance, you can challenge the decision but we expect that if you’re deemed Outside IR35, you’ll be rather happy. Therefore, those determined as Inside IR35 will be able to submit their dispute within the Worksome platform, who work with tax advisors who will review your dispute and resolve it quickly. Legally, and at any time throughout your assignment, you can lodge a dispute and this must be resolved within 45 days. But through Worksome we aim to conclude this within an estimated 48 hours.
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If you disagree with the IR35 determination result and can produce material evidence to support your grounds for a revised determination, you can file a dispute. Follow the guide below:
​Procedure for disputing an IR35 INSIDE determination

Each assignment will be judged on its own merits so there isn’t a one size fits all approach. However, IR35 is not trying to punish the truly self-employed so there are things you can do to support this. Professional insurances, marketing costs, and concurrent projects are examples of what you would expect to see from a self-employed worker. The same can be said for working remotely, using your own equipment and rectifying mistakes at your own cost.

Yes. All status determinations made post-6th April under the new reforms are underwritten by a Fee Payer policy that protects against future HMRC investigation and/or additional tax liabilities. This means that projects deemed 'Outside IR35' from the questions answered by both parties using Worksome will be covered, should HMRC ever challenge the payments.

HMRC has a Check Employment Status for Tax (CEST) tool, containing lots of questions to be manually answered for each freelance project. You will likely come across this assessment with a lot of companies sadly not yet using Worksome. In around 20% of cases, CEST is unable to determine whether an assignment is Inside or Outside of IR35. It’s a labour-intensive tool that does not integrate with third-party software. It also relies on the user understanding IR35 in order to obtain any meaningful decision (which sadly isn’t always going to be the case).

Luckily, Worksome has qualified tax specialists in-house, plus our platform uses the data produced in the hiring process to answer the majority of these without you having to lift a finger. Technology, eh?

​Need help? Get in touch!

If you would like to find out more or have any questions, please email our team at hello@worksome.com.