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IR35 legislation came into force with the Finance Act of 2000. It's purpose is to determine if contractors are “disguised employees”.
IR35 was postponed until April 2021 due to the global COVID-19 outbreak, read more here.
IR35 in 5 Quick Points
IR35 determines whether or not contractors are ‘disguised employees’ or are, in fact, self-employed.
IR35 outlines your employment status and how much tax you must pay.
If you are ‘inside IR35’ it means that, as a contractor, you are liable for full PAYE and NIC’s.
IR35 is determined on an assignment by assignment basis and can change on each contract.
Being ‘inside IR35’ doesn’t mean you can’t work through a limited company.
What determines IR35 status?
There are several factors to consider, including but not limited to:
Right of Substitution – will the client allow a substitute to provide the service?
Supervision & Control – does the client tell you how, when and where to do the work?
Mutuality of Obligation – is the client obliged to offer work to you and are you obliged to accept this?
Financial Risk – do you have to pay for your own training/tools? do you have to remedy any work which you had done under the agreement previously at your own expense?
Length of Engagement – are you working for one client long-term or for multiple clients on short term contracts?
How can ICS Accounting help?
Our IR35 audit is a vital stage in allowing our contractors to determine their correct employment status if they operate through a personal service company [PSC]. From 6th April 2021, if your end client is a medium or large business in the UK it will be their responsibility to determine your IR35 status.
We can support you, your agency and your end client with the upcoming changes so please contact us to hear more about our compliant accounting solutions.
There’s an exemption for end-clients who are ‘small businesses’ as defined by the Companies Act 2006 which means meeting two or more of the following criteria:
Annual turnover < £10.2 million
Balance sheet total < £5.1 million
< 50 employees
Where the end-client meets two or more of these criteria, responsibility for determining the IR35 status of a contract remains with the PSC and the changes do not apply.
With the investigation of many IR35 cases still continuing, it is important that contractors are fully aware of their IR35 status.