In simple terms, IR35 is tax legislation introduced by the UK Government designed to tax “disguised employment” at a rate similar to employment. This predominantly applies to contractors working with clients through intermediaries, such as a personal service company, where they could be seen to be acting as employees.
If you are operating under an IR35 contract, the legislation requires that income tax and NI is due on the income received (less certain allowable expenses) as if that income had been paid as salary. This net income amount is called the deemed payment. Typically, if less actual salary has been paid than the deemed payment, the shortfall in tax and NI has to be paid over at the end of the year.
To help with this FreeAgent have created a new IR35 report which calculates the accumulated deemed payment from your IR35 projects, helping you plan and set your monthly salary so there will be no additional deemed payment to account for at tax year-end.
How it works
If you’re working on a project caught under IR35, simply tick the IR35 box when you create the project in FreeAgent. This will mean that any income and expenses associated with the project are included in the calculation.
The new IR35 report will then be available in the Accounting > Reports section. This includes a month-by-month look at the accumulated income and allowable expenses across all IR35 projects and the calculated deemed payment as a result.