What is 'IR35'
Dispelling the confusion
'In' or 'Out'
Does it Apply to You
Staying on top of IR35
What is 'IR35'
IR35 is the commonly referred to term for a tax law called the Intermediaries Legislation.
It was introduced on 06 April 2000 to tackle the avoidance of tax and NICs through the use of intermediaries such as limited companies in circumstances where an individual would otherwise be regarded as an employee rather than being genuinely self-employed.
Please note that it is your responsibility as a contractor to continually assess whether you think that IR35 applies or not.
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Dispelling the confusion
The Legislation can be confusing for agencies, clients, personal service company contractors and service providers and has given rise to a lot of incorrect advice and fear tactics. This has lead a number of service providers to offer what they claim to be "IR35-proof solutions".
Unfortunately, promises by service providers of 100% "IR35 compliance", guarantees of no risk, check lists and insurance are often of little use because each individual contractor's situation will be different and needs to be reviewed and monitored on its facts taking into account both contractual terms AND the reality of the supply arrangements. Employment status is not a matter of choice or ticking boxes - it depends on the reality of the relationship between client and personal service company contractor.
Therefore signing a one-off piece of paper or a so called "IR35 friendly contract" is unlikely to affect IR35 status if it does not reflect the reality of the relationship.
Also, the proposed amendments to 2003 Finance Act, Chapter 9, 61B, 2-e (click here) indicated that service providers promising to make good any tax losses incurred by their clients may be deemed MSCs.
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'In' or 'Out'
There's actually no such thing as "in" or "out", the Legislation simply applies or doesn't apply.
Applies - If the Legislation applies, (commonly called 'inside' IR35) it will mean that a contractor is, for tax purposes, treated as an employee of their end client, and therefore not as a self-employed contractor.
If IR35 applies then, the appropriate employment level tax rates would need to be applied to any earnings generated from the affected assignment.
Doesn't Apply - If the Legislation does not apply to the assignment arrangements (commonly called 'outside' IR35) then the personal service company contractor would for tax purposes, treated as a self-employed contractor with their own business, and be entitled to manage their own limited company earnings as they choose.
Although Safe Business Services cannot confirm whether or not IR35 applies to your assignment we are pleased to assist you with some simple, clear and factual information to help you decide whether IR35 applies to your assignments.
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Does it Apply to You
As a personal service company contractor, it is your responsibility to assess whether or not you think IR35 applies to each assignment you work on.
The IR35 Legislation itself can be complex and difficult to follow. HMRC issues guidance on what they look for when deciding whether IR35 applies or not.
As a general rule, for IR35 not to apply you will need to demonstrate that you can:
- Substitute resources - i.e. hire someone to do the work for you or engage helpers at your own expense
- Control the delivery of services - i.e. devide what work to do, ho and when to do it.
- Take responsibility for work - i.e. be obliged to correct unsatisfactory work in your own time and at your own expense.
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Staying on top of IR35
Your clients and assignments may change from to time to time. Any of the following changes may affect how IR35 relates to you:
- Ending or extending an assignment
- Starting a new assignment
- Changing agency
- Changing what you do for a client
Legal disclaimer: Please note that the content of this information page is for information purposes only and not intended to be relied upon as advice on IR35. You are advised to seek your own independent legal and tax advice on this matter.
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