About IR35

What is IR35?
IR35 legislation came into force with the Finance Act of 2000. Its purpose is to determine if contractors are "disguised employees" and therefore liable for full PAYE and National Insurance.

What does IR35 mean for me?
IR35 is a way of determining your employment status and, in turn, how much tax you must pay.

A contractors IR35 status is determined on an assignment by assignment basis so it is important that you complete an IR35 audit each time you undertake a new contract.

Being found to be outside of IR35 does not mean that you can not work through a limited company, it just means for that particular assignment that your status was found to be captured you will have to pay yourselfPAYE.

For advice and guidance on your own IR35 status, and the options available to you, call us free on 0800 195 3750.

What difference has IR35 made to contractors?
IR35 has had a big impact on contractors since its inception as it makes each individual contractor responsible for determining their own IR35 status. The fact that there remain grey areas has not helped, and means it’s very important to seek professional advice.

What are the IR35 Rules?
Broadly speaking, the following elements determine IR35 status.

The Contract
Your contract should make the following points very clear, so there can be no misunderstandings.
1. Control and Supervision
Although a contractor would usually be expected to provide services during certain times at a specific location, the contract must make it clear that the client does not control the way in which the services are provided. That’s a key difference between client-supplier and employee-employer.

As a Director of your own business you will need to be able to demonstrate to HMRC that you are not influenced by your end client and that you are in sole charge of your business. You must be able to demonstrate that there is not un-due control exerted over you and your company whilst you are carrying out the assignment.

2. Mutuality of Obligations
This point has caused untold confusion in the contractor world. But at its essence it’s quite simple. Does the contract oblige the client to offer ongoing contract work, and/or does it oblige you to accept it? If either answer is no, then this shows the relationship between the two parties is not that of an employee and employer.

3. Unfettered Right of Substitution
This is a way to differentiate between agreement with an individual employee and a genuine contractor. If the contract states that a substitute can be provided in place if required with the required skills, experience or qualifications.

Working Practices
Here are some of tests HMRC may use to ascertain if someone is a genuine contractor:

• Does the contractor use their computer or tools, or do they use the client’s equipment (this is a grey area, as the cost of equipment, and its maintenance may be factors)?
• Does the contractor have a designated parking space, or are they a ‘visitor’?
• Does the contractor wear a company uniform or badge, or are they clearly independent?
• Does the contractor appear on the company organisation chart, website or phone lists?
• Does the contractor have client business cards in their name?
• Does the contractor attend group training aimed a team-building or similar activities?
• Does the contractor enjoy employees benefits such as a subsidised canteen or gym facilities?

Any of these things could be interpreted to mean the contractor is really a disguised employee.

Structure
HMRC may look at the structure of your business for signs that it is a legitimate entity:

• Does it have a business name?
• Do you have a business bank account?
• Is your company registered at companies house?
• Is the company register for VAT? and registered address? Is the company registered for VAT?

Length of Engagement
Although not conclusive, the length of engagements can indicate whether a person is treated as employed or self employed.

For example, if you work for one client solely for many years, then this can be indicative of being an employee. By way if contract, working for a series of clients for short periods of time would be a sign of a genuine contractor.

Intention of the Parties
It is not enough for the contractor to call themselves self-employed. It must be clear that both the client and the contractor understand the terms of the agreement, that the client perceives the contractor to be self-employed and not part if their existing workforce. This can usually be made clear in the contract.

Financial Risk
If you stand to lose money as a result of providing services then this can be indicative of self-employment. You may need to buy assets or equipment to do the job. You may incur other expenses such as for training.

If you have to resolve errors made when providing your services in your own time without being paid then this is a sign of self employment.

How does ICS deal with IR35?
Since Independent Contractor Services (ICS) was established in 2002 our priority has always been care and compliance. Our IR35 audit has been vital in allowing contractors to determine their correct status.

A comprehensive IR35 questionnaire is issued to each contractor. This is supported by expert advice provided by our experts who have many years worth of experience with dealing with our contractor customers and the IR35 legislation itself.

What is an IR35 Review?
An IR35 review is a standard part of our service and is available to all contractors at no extra cost – just ask for details.

We conduct an initial IR35 review when an individual first joins us, ideally before the assignment has even started. We also complete regular reviews when a contractor is on a long-term contract to ensure that they remain outside of IR35 throughout the assignment

Each time a contractor changes his contract we will also undertake a new IR35 review.

Why is an IR35 Review important?
Our IR35 review provides contractors with all the support needed to managing their own IR35 status. By adhering to our advice the contractor is certain to remain compliant. As a Director of their own company this will prevent any further complication and the possibility of being landed with a bill for unpaid tax.

Why should I do next?
For further advice with regards to your IR35 status – and a free IR35 Status Review – please contact us on 0800 1953750 to speak to one of our experts. Alternatively please email us at info@ics.me.uk.