Inside and Outside IR35: What Contractors Need to Consider for Their Next Day Rate Role in 2022
Within the last year, there has been a significant increase in opportunities within the communications, digital, and marketing industries. With job vacancies at an all-time high, working on a contract or interim basis has become more lucrative than ever. As you enter the contractor market, it’s crucial to understand whether your contract falls inside or outside IR35 to ensure your day rate is paid correctly.
Understanding IR35: Inside vs. Outside
What Does Inside IR35 Mean?
Introduced in April 2000, the off-payroll working rules ensure that contractors operating similarly to permanent employees are taxed appropriately. If your contract is inside IR35, you must pay income tax and National Insurance, akin to permanent employees. This is often managed through an umbrella company.
What Does Outside IR35 Mean?
A contract outside of IR35 means that HMRC regards you as self-employed, allowing you to pay yourself in a tax-efficient manner. This may involve working on specific marketing, digital, or communications projects or working for multiple clients. To determine your contract’s status, you can use HMRC’s check employment status for tax tool.
Comparing Inside and Outside IR35
Inside IR35
- You are regarded as an employee for tax purposes.
- You need to pay income tax and National Insurance contributions, usually managed by your fee payer via an umbrella company.
- Despite being viewed as an employee, you may not receive employee benefits like holiday or sick pay.
Outside IR35
- You are self-employed and operate as a business.
- You are responsible for your own taxes and can pay yourself in a tax-efficient way.
- You can continue to run your limited company, even if your current contract is inside IR35. However, you may need to make deemed payments to HMRC for contracts outside the IR35 rules. Consulting your accountant is advisable due to the complexity.
At VMA GROUP, we strive to make the hiring process as smooth as possible for contractors and clients by assisting all parties in navigating the challenges presented by the legislation. Whether you are open to new opportunities or seeking additional support on an interim, contract, or temporary basis, please get in touch with our Interim team.
VMA GROUP is an international interim, contract, temporary, and permanent recruitment and executive search specialist. We focus on supporting the communications, digital, and marketing communities. Our specialist practice areas include communications, corporate communications, internal communications, change communications, PR, media relations, financial communications, CSR, public affairs, investor relations, marketing, digital marketing, and agency services.
