IR35 affects all contractors who do not meet the Inland Revenue's definition of 'self employed'. So, are you self-employed? The first and most important point to establish is whether the IRs definition refers to you. Unfortunately, the ambiguities of the ‘employment status’ guidelines don’t really help matters. The Inland Revenue state that they will take an overall view of a contractors position to determine if they are deemed ‘employed’ under the rules. Therefore, any amended contracts should also reflect your working practices.
Self-Employed Quiz
If the answer is ‘Yes’ to all of the following questions, it usually means the worker is self-employed.
- Can they hire someone to do the work or engage helpers at their own expense?
- Do they risk their own money?
- Do they provide the main items of equipment they need to do their job? Not just the small tools that many employees provide for themselves?
- Do they agree to do a job for a fixed price regardless of how long the job may take?
- Can they decide what work to do, how and when to do the work and where to provide the services?
- Do they regularly work for a number of different people?
IR35 Explained.
If you provide your services to a client or end-user via an intermediary, typically a service company or partnership, and the intermediary doesn’t meet the definition of a ‘Managed Service Company’, then the IR35 legislation may apply to engagements with that client.
Broadly, it applies to those engagements where:
- You personally perform services for another person (the client).
- The services are not directly provided with the client but under arrangements involving an intermediary.
- The circumstances are such that, if you had provided the services directly to the end user under a contract between you and the client, you would have been regarded for income tax purposes as an employee of the client and/or, for NICs purposes, as employed in employed earner’s employment by the client.
In addition, you must receive rights entitling you to obtain a payment or benefit that is not employment income.
Occupations affected by the Legislation.
The legislation is not targeted at any particular occupation or business sector. It can apply to any occupation in any business sector. Examples include medical staff, chief executives of large plc.’s, teachers, legal and accountancy staff, construction industry workers, IT contractors, engineering contractors and clerical workers.
The rules will apply if the intermediary does not meet the ‘Managed Service Company’ definition and you answer ‘yes’ to the following:
- Would you be an employee if you worked for your client directly and not through your company or partnership?
- Does the company or partnership you work through meet certain conditions?
What does it mean for Contractors?
If your contract and working practices give the impression that you are inside, or ‘caught’, by IR35 legislation then you will ultimately have to pay full tax and full National Insurance. This is instead of the usual salary and dividends from the profits of your company. Unfortunately, the expenses you can claim will also be reduced. This is due to the HM Revenue and Customs belief that because you aren’t taking financial risks or obtaining the same level of control as a director of your own company, you shouldn’t be entitled to the same corporate tax structure.
If an investigation is launched by HMRC and you are discovered as a “disguised employee”, inside IR35, you will be liable for any taxes you have evaded. You’ll be liable for these due to being afforded a lower tax rate by your Limited Company status, alongside a heavy fine.
The only way to be sure if your contract falls inside or outside of IR35, is to have the contract reviewed by a specialist. EAFS can provide our clients with a free IR35 contract review.
Why Choose EAFS?
- We are Payroll Experts: We have major experience in Europe and hold all necessary licences for distributing payroll across the EU.
- Value for Money: Our fees are highly competitive and very reasonable, especially compared to other firms.
- We are on top of the Latest EU Developments: The legislation for the European Union is constantly changing, we stay up to date with all developments to provide the most legally compliant service at a competitive price.