What you NEED to know about IR35 contractor mortgages 2021| IR35 Explained | WIS Mortgages advice

What is IR35?

IR35 is a piece of UK tax legislation introduced in 2000. It determines whether a contractor is considered self-employed or effectively an employee for tax purposes.

What does it mean to be outside IR35?

If you are outside IR35, you are classed as self-employed for tax purposes. This means you are responsible for calculating and paying your own taxes correctly and on time.

What does it mean to be inside IR35?

If you are inside IR35, you are treated like an employee for tax purposes and must pay tax at the same rate as someone in the same tax bracket who is employed.

Who decides IR35 status?

• In the public sector, since 2017 the responsibility has been on the employer hiring the contractor.
• From April 2021, this rule was extended to the private sector. This means the hiring company now decides your IR35 status—not you.
• Surveys suggest that many hiring companies are more likely to declare contractors inside IR35.

How do umbrella companies fit into this?

An umbrella company is a separate company that acts as your employer if you are contracting on fixed-term assignments. By joining one, you are technically employed and paid through the PAYE scheme.

How does IR35 affect me getting a mortgage?

IR35 could make it harder for contractors to get a mortgage after April 2021. Here’s why:

• If you must work through an umbrella company, many lenders are not yet familiar with this structure.
• Some banks may ask for up to 12 months of payslips from your umbrella company, even if you have been contracting for 10 years.
• This could slow down or restrict your mortgage application.

Is it harder to get a mortgage if I’m inside IR35?

Potentially, yes. Because working via an umbrella company may not be fully recognised by all lenders, requirements can be stricter compared to contractors working through their own limited company.

Should contractors consider getting a mortgage before April 2021?

Yes, it may be easier. After April 2021, lenders’ approaches to IR35 were uncertain. On top of that:

• The stamp duty holiday was due to end.
• The Green Homes Grant was ending.
• The old Help to Buy equity loan scheme was changing.
• For many contractors, acting before April 2021 meant avoiding both tax complications and losing government incentives.

Need Help?

If you’re a contractor thinking about buying a home, call WIS Mortgages on 0203 011 1986 or visit www.wismortgages.co.uk to discuss your options.