When Does IR35 Apply?

You’ve probably already heard of IR35 but may not be entirely sure what it is and how (or if) it applies to you. After all, the regulation is broad in scope and complex, so it can be a little challenging to navigate. If you feel this is the case and need IR35 advice, we’re here to help!

ICS is used to dealing with regulations such as these, as we have many years of experience and knowledge in the area; so, let us help you determine your correct employment status. Meanwhile, check out below if IR35 is applicable in your situation or not, which can keep you from speculating.

contractor shaking hands, contract compliant with ir35

What Exactly is IR35?

IR35 is, simply put, tax legislation that aims to eliminate tax avoidance amongst contractors of PAYE tax and National Insurance contributions through the use of intermediary companies (like limited companies or partnerships, though even if you’re ‘inside IR35’ you can still work through a limited company).

IR35 was introduced in April 2000 and determines whether or not contractors are ‘disguised employees’ or self-employed. Disguised employment occurs when organisations hire self-employed workers through an intermediary and not an employment contract.

This legislation also outlines your employment status and how much tax you are supposed to pay.

IPSE, a contractor group, wants a more simplified version of IR35 – or even its abolishment, as the legislation is considered too complicated. Despite this, there have been no changes to IR35.

When Does IR35 Apply?

IR35 will apply three main principles that will help to determine employment status, such as:

– Control – how much control does a client have over what, how, when and where a worker finishes the work.

– Substitution – can the worker be replaced by someone else to complete the work?

– Mutuality of obligation – a concept where the employer has to offer work and the worker has to accept it.

Other Factors That are Considered

This legislation will take several other elements into consideration when it comes to reaching the right status decision, including:

– The client’s business

– Whether there’s any contract

– The intentions of the parties

– The length of the contract

– The terms of the contract (such as work hours)

– The pay structure (for example, holidays)

– Whether the contractor is working exclusively for one client

– Whether the work equipment belongs to the contractor

– If the employee gets any benefits

– If the employee is financially vulnerable

Because each case is different, IR35 has to consider several different aspects of a person’s work activity, so that authorities can easily paint a picture of the situation – and reach a fair decision.

After deliberation, if the worker is considered an employee, then IR35 applies.

What Happens If IR35 Applies to You?

The importance of evaluating the IR35 status of a contract before signing it is undeniable and the HMRC considers it your responsibility to have everything in order.

If not, the financial impact of IR35 is the biggest thing to consider if you’re not compliant with this legislation. You may be liable for full PAYE and National Insurance contributions, but IR35 is determined on an assignment basis and can change on each contract.

In order to prevent this from happening, you should consider seeking professional and expert help in employment law. This is often the right course of action because of the multitude of factors to think about – and the laws surrounding them – can be daunting and difficult to deal with.

Because there are still many IR35 cases being investigated, it’s crucial that you, as a contractor, are aware of your IR35 status and avoid being caught in breach of this by HMRC. Get in touch with a member of our team today and learn more about this legislation and whether or not it’s applicable to you – we aim to help you with your peace of mind and give you the necessary advice to deal with IR35.