As a contractor it is important that you understand IR35 (also known as Intermediaries Legislation). Introduced in 2000 to stop people starting up limited companies to carry out the same jobs as permanent employees (known as disguised employment), IR35 looks at your employment status on an assignment by assignment basis.
There are several criteria to consider when reviewing your IR35 status, with three key factors.
As a contractor you will be expected to have autonomy over what you do, when you do it, how you do it and where the services are performed.
A contract is between the client and your company but who provides the services? If there is a lack of personal service then you wouldn’t necessarily have to carry out the work and you could send a substitute in your place.
As a contractor you should only work to carry out a set task or project. There should be no obligation from the client to offer further work and no obligation from you to accept it. Further work outside of the original assignment should be agreed via a new contract.
There are several other factors to consider when reviewing your IR35 status.
It is important to make sure the contract accurately reflects your working practices when you are on assignment.
As a contractor you need to demonstrate that there is financial risk to your operation. This can be in the form of financial investment in the business to obtain contracts or agreeing to make good any errors in your work at your own cost.
You should be seen as a contractor when on site and as such be treated differently to the client’s permanent employees. It is important not to become part and parcel of the client’s organisation.
Over your lifetime as a contractor, you will have multiple contracts and some of these will be inside IR35 and some will be outside IR35.
If you are deemed to be inside IR35 then you can still operate through your own limited company, it just works in a slightly different way.
Your IR35 status will affect the way you can pay yourself. Being inside IR35 means you are treated like an employee in terms of having to pay tax and National Insurance on your full income removing the benefit of being able to take a combination of salary and dividends via your limited company. It also means there are certain expenses that you won’t be able to claim.
A deemed payment to HMRC will be required at the end of the tax year to make sure you have paid the correct amount of tax and National Insurance.
In an HMRC crackdown on disguised employment, from April 2017, all assignments in the public sector now have their IR35 status determined by the end client rather than the contractor having the freedom to decide their status. At present these changes do not impact the private sector.
It is important to get your contract reviewed to determine your IR35 status and at Taxevo we will be happy to carry out a full review of your contract and working practices. Speak to one of our experts today on 01962 790237 or email [email protected].