Recent reforms in legislation 

What is IR35?

IR35 legislation is designed to assess whether a contractor is a genuine contractor rather than a ‘disguised’ employee, for the purposes of paying tax.

Contractors who work through their limited company enjoy a level of tax efficiency. While they do not usually get employee benefits (like holiday and sick pay), they have flexibility and control over their work.

IR35 is essentially an employment status test for tax, which works out whether a contract points towards employment or self-employment:

• • if your contract is ‘inside IR35’, it points towards employment. HMRC sees you as an employee and you face an income tax and National Insurance burden
•  • if your contract is ‘outside IR35’, it points towards self-employment, and you can enjoy the tax efficiency that self-employment brings (as well as all the associated risks)

How do I know if my assignment is inside IR35?

You can verify this on the Government’s website - www.gov.uk/guidance/understanding-off-payroll-working-ir35

The Check Employment Status for Tax tool is designed to help you determine whether your assignment is inside or outside of IR35.

It is up to the end-client to determine IR35 status and make the decision. 

IR35 checklist: am I compliant?

In general, IR35 will not apply if the contract is for services rather than employment. To untangle that, you should see whether the contract specifically mentions these principles:

• supervision, direction, control – this relates to how much say your client has over how you complete your work. For example, if you have to work at certain times, this implies employment
• substitution – could you bring someone else in to complete the contract, or do you need to do the work yourself? If you can’t send someone else, you’re likely to be within IR35
• mutuality of obligation (MOO) – is there an obligation on the employer’s end to offer work, and do you have to accept it? This is called mutuality of obligation, and if an element of it exists, the contract may fall inside IR35

There’s more criteria to consider when working out IR35 status:

• equipment – HMRC often tries to argue that if equipment is provided by the client, and you don’t use your own, you’re a disguised employee
• financial risk – self-employed contractors usually take a degree of financial risk, like any other business. Are you responsible for errors made during the contract, and would you need to rectify them in your own time? There’s usually a requirement to have professional indemnity insurance
• the way you’re paid – self-employed people are paid on a project basis, which might mean when the work is completed or at particular project milestones
• ‘part and parcel’ of the organisation – if contractors become so ingrained that they become part of a company’s structure, with people reporting to them for example, this points to employment rather than self-employment
• exclusivity – do you work for other clients? Typically the self-employed can work for multiple clients at once
• intentions of the parties – the contract should make sure the relationship between contractor and client is one of supplier and customer, but this should be genuine. If HMRC found the actual intended relationship is more like an employee and employer, it’ll ignore the contract
• business ‘on your own account’ – essentially this determines whether you’re actually running your business as a business. If you have things like a business website, a dedicated office space, and even employees, you could be seen as operating a business and not offering your services in the same way as an employee.