Many contractors are confused by IR35- what it is, what it entails and whether their business falls within its boundaries. Here we shall attempt a brief overview, and what you should do if you find that it applies to you.
What is IR35?
IR35 is a piece of legislation that determines whether a contractor is “disguised employee” or genuinely self employed. It determines your employment status and therefore how much tax you pay.
A complex piece of legislation, IR35 rules have not changed since 2000 and focus around three main clauses which are; Control and Supervision, Mutuality of Obligations and Unfettered Right of Substitution. For many years, contractor groups such as the PCG have pushed for the legislation to be simplified or abolished due to its complexity and the difficulty it causes to contractors and freelancers.
Your IR35 status can vary from project to project, meaning that some areas of your income fall under IR35 while others do not.
How do you know if you are ‘self- employed’?
According to HMRC, you are self-employed if you are “in business for yourself”, and therefore not covered by standard employment legislation. You will still however have protection for health and safety and, in certain circumstances, be protected from discrimination. Any rights and responsibilities will be set out by your client when you take on a new contract.
Contractors can be regarded as either self-employed or a worker/employee (if they work for a client and are employed by an agency).
What do you need to do?
Since IR35 can be a very complex issue, it is vital that you should be fully aware of your employment status. There is a Business Entity Test available on the HMRC website; scoring contractors on a series of questions, it gives a strong indication of what your overall IR35 status will be.
Alternatively, you may prefer to download our free IR35 guide. Not only does it cover all the most frequently asked questions about IR35, it contains details of the HMRC Business Entity Tests. We also offer a free, no obligation IR35 review; to take advantage of this great service, please don’t hesitate to contact us on either 0800 195 3750, available 9-5 Monday to Friday, or by email at firstname.lastname@example.org. Since IR35 has not changed since its original introduction in 2000, it is imperative to make sure you are on the right side of the law.