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IR35 - Contractor or Employee?
By Heather Platts BA(Hons) | Updated September 19, 2007
A quick Google search online will elicit a myriad of sites dedicated to telling you about the background to… the rules covering… ways to beat… and products to assist - IR35.
The introduction of IR35 has been seen in a cynical light as a move by the Government and HMRC to close down tax saving benefits for contractors. The legislation change came in to force in April 2000 and if you haven’t done so already, it might be useful to at least acquaint yourself with what HMRC say about IR35 <by clicking here>.
In essence HMRC’s viewpoint can be seen within this paragraph:
The purpose of the new rules (IR35) is to remove opportunities for the avoidance of tax and Class 1 National Insurance Contributions by the use of intermediaries, such as service companies or partnerships, in circumstances where an individual worker would otherwise be an employee of the client or the income would be income from an office held by the worker.”
This is a complex piece of legislation which as a contractor, affects you and your income - and whilst you can unpick the pieces, there is no denying that through this particular mine field, it really is easier to simply talk through what options you have and how your business can best be managed - in order to negotiate IR35 both legally and efficiently. Which of course is where we come in - our first discussion is always free - our advice however offers you priceless peace of mind.
One of the key issues to be reviewed will be whether you are, by law, categorised as ’self employed’ - the 3 most common indicators used are:
(1) Control - can you demonstrate your contract is a ‘contract for services’ rather than a ’service contract’ - what is the nature of the relationship between yourself and those you are contracted with?
(2) Mutuality of obligations - is your work project based or is there a mutual obligation to attend and or be given work to perform?
(3) Right of substitution - under your working relationship could you substitute yourself for another individual?
These are key to deciding the nature of the work you do, the relationship you have and whether you are indeed self employed - these questions would form the basis of making a decision as to whether you fall inside IR35 or not.
This is however only the very beginning - there are rules then governing how you will be treated as a taxable entity and this will affect the contributions you are required to make and will require some guidance in making the best personal decision moving forward.
Besides working through the tax implications we will be able to discuss with you the nature of the contracts you negotiate - including the key components for determining your employment status.
Topics: IR35 for Contractors |
