Free IR35 calculator: Find out how much more tax self-employed workers will pay in 2021
THOUSANDS of self-employed workers will see their tax bill rise from April as new rules come into force.
The IR35 change will affect those working in the private sector who have set themselves up as a limited company in order to pay less tax.
IR35 are off-payroll working rules that ensure self-employed workers pay roughly the same amount oftax and National Insurance Contributions as PAYE employees.
But a loophole in the system has allowed self-employed workers to cut the amount of tax they owe by providing services through a personal service company, rather than as an individual freelancer. They are called contractors.
New rules were introduced to tackle the inequality in the public sector back in 2017 and then extended to the private sector a year later by the then-Chancellor Philip Hammond.
The law change was supposed to come into effect in April last year, but pushed back until April 6, 2021, due to the coronavirus crisis.
The government estimates next month's change will affect 170,000 contractors, but it will only apply to medium and large-sized businesses.
It says genuine freelancers and self-employed workers won’t be affected.
Use a free tax calculator
There are a number of free tax calculators available to use online that will help you work out how much you will owe next year.
Contractorcalculator.co.uk uses your rate, rate type and IR35 status to calculate how much tax you will owe under the new legislation.
You will also need to let it know an estimation for your annual expenses.
This will give you a basic estimate of what you can expect your tax bill to be in the next financial year.
There is also an advance option that will give you more specific calculations if you provide more details, such as how many hours you work over how many weeks of the year.
There is also an tax calculator for contractors under the current IR35 rules, which you can use to compare how much more you will have to pay.
Alternatively, you can use UKtaxcalculators.co.uk or PayStream.
Who does the rule change affect?
The changes will hit those working in the private sector, such as IT workers and management consultants, who pay less tax by setting themselves up as private companies.
This is usually set up as a limited company, but it could also be a partnership, a personal service company or as an individual.
You may be affected by these rules if you are:
- A worker who provides their services through their intermediary
- A client who receives services from a worker through their intermediary
- An agency providing workers’ services through their intermediary
From April 6, your client should provide you with a "status determination statement" if the rules apply and explain their decision.
If the rules apply, it must deduct tax and National Insurance contributions from your fees and pay it to HMRC.
Previously, contractors have determined their employment status for tax purposes themselves.
Self-employed workers are taking pay cuts, working in jobs they don't want and delaying having kids in order to get on the housing ladder.
Freelancers could also slash tax bills by £355 each by claiming for expenses.
We explain all you need to know about the fourth self-employed government grant and when to claim.
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