Understanding the differences between "Inside IR35" and "PAYE" is important for external workers when entering into a new booking.
Inside IR35 refers to contractors who engage via their PSC but are deemed employees for tax purposes only HMRC recognise Worksome as your ‘deemed employer’. These contractors must pay income tax and National Insurance (NI) contributions similar to regular employees.
The IR35 status of your booking is assessed based on factors such as control, substitution, and mutuality of obligation.
On the other hand, PAYE stands for ‘Pay As You Earn’ and relates to the way that most employees pay their taxes. If you are employed, tax (as well as any National Insurance and other necessary deductions) will be deducted directly from your salary by your employer, making payments easier to understand.
PAYE employees are also entitled to statutory benefits such as holiday pay, sick pay, and pension contributions.
Worksome handles all the necessary deductions for both inside IR35 workers and PAYE workers before payment. Standard deductions include employee's NI, income tax, and potentially employer’s NI depending on the client.
The key differences between the two:
Inside IR35 contractors are treated as employees for tax purposes only but do not receive employment benefits, while PAYE workers are employees will receive statutory benefits.
Also inside IR35 freelancers engaging via their PSC must exert a level of legal and administration on their PSC that employees do not have to worry about.