The intermediaries legislation is a set of rules that determines whether an individual is an employee or an independent contractor. If the individual is deemed to be an employee, then the company will have to pay them accordingly and also make additional contributions towards their national insurance and pension scheme as well as other benefits. If you own a business, it can be confusing to know if your contractors are subject to intermediaries legislation. The rules are not always straightforward, with many grey areas and exceptions. In this article we’ll explain what intermediaries legislation is, how it affects your business, and what you need to know if you work with contractors.
How Does Intermediaries Legislation Affect Your Business?
Depending on the circumstances, contractors who would otherwise be subject to intermediaries legislation may be able to negotiate being treated as employees and therefore avoid paying the higher rate of tax. If you are caught out by intermediaries legislation or IR35, you will have to pay your contractors the difference between what they have been paid and what they would have been paid as employees. The difference in cost can be substantial. Additionally, if your contractors are treated as employees, they will be entitled to benefits such as sick pay and maternity leave. You will have to make additional payments to cover these.
The Impact of Intermediaries Legislation on Your Contractors
Although intermediaries legislation affects you and your business, your contractors will be just as affected by the legislation. If a contractor is caught by intermediaries legislation, they will have to pay additional income tax and National Insurance. In most cases, the contractors will be able to recover this from HMRC by claiming for “employee” status and paying the appropriate amount. This is a slow and sometimes complicated process and may take months or even years to resolve. If a contractor is caught by intermediaries legislation, they may decide to leave the job, even if they are successful in their claim for employee status. This may be because they want to avoid the extra work involved in claiming back the money they have overpaid in tax.
Bottom Line
If you hire contractors, it’s important to understand if they will be caught by intermediaries legislation and what this means for you and your business. If you hire contractors who will be caught by intermediaries legislation, you will have to pay them the difference between what they have been paid and what employees in the same role would have been paid. This can have a significant impact on your business. You may need to hire additional staff and pay them as employees, incurring increased costs. Alternatively, you may have to reduce the number of contractors you hire, which can negatively impact your business. If you work with contractors and want to understand how intermediaries legislation affects your business, then take time doing your research. Remember that you have to understand the rules and how they apply to your business.
