Since the start of the month and much noise in the media regarding the changes to IR35 in the private sector, we have been inundated with questions relating to this subject.
We are not IR35 specialists, and would always recommend you take independent legal advice should you have further questions and concerns regarding your IR35 status. However, we did think it might be useful for you to have a short summary to help you better understand IR35, also known as off payroll working, as well as providing you with some links to useful resources we have found:
What is IR35?
IR35 is a legislation put in place to stop workers fraudulently claiming to be contractors for tax benefits. It’s designed to assess whether a contractor is a genuine contractor, or a ‘disguised’ employee that avoids paying tax. If you are a contractor, you need to ensure that you are IR35 compliant.
This can be confusing, but the following downloadable guide will help you make sense of these complex rules. What Is IR35?.pdf
The following Youtube video explains IR35 in under 2 minutes for those who need a quick, simple breakdown: IR35 Explained In Under 2 Minutes!
What’s all the fuss about?
The reforms now place the responsibility of assessing employment status on the end client, rather than on the contractors. As a result, some companies are being extra-cautious and putting all contractors on the payroll. This is a costly move though – many contractors not interested in becoming full-time employees will take their services elsewhere.
What should I do now?
HMRC promised to take a lenient approach in the first year, however, its strongly advised that you prepare as much as you can now. With forward planning, you will be in a much better position to prevent your employment status from changing.
The following Check employment status for tax tool will help you to determine your employment status (and compliance with IR35).
It’s also worth noting HMRC’s judgement criteria for IR35 rulings;
- Mutuality of obligation
- How much control is being imposed on the contractor
- What the overall picture of your Personal Services Contract (PSC) looks like
Top tips to help achieve an ‘outside IR35’ ruling
1. Review the personal services contract
There must be a contract in place between the contractor and end client. Develop the self-employed aspects of the contract by not including a notice period, a set working address for the project, a job title, set working hours or overtime rates.
The contract should include a detailed substitution clause. This should outline how the contractor is responsible for sourcing, hiring, and paying a suitably qualified substitute who can provide the same service if required.
2. Change your payment schedule
Rather than being paid monthly as an employee would be, switch to being paid upon completing the project or upon completing project milestones. A penalty clause can be included in the contract for failing to meet a deadline. This can help distinguish a contractor from an employee.
3. Control how the work is delivered:
A contractor manages their own time and controls how and where the services are delivered. This should be reflected in the management of the project and in the contract.
4. Alternate clients
Upon completion of a project, it is advisable to alternate clients, rather than rolling into another project with the same client. This can avoid a ‘mutuality of obligation’ from arising.
5. Set up a website
To strengthen their position as a contractor, the PSC should have its own website. Having a strong online presence can help existing and prospective clients perceive the PSC as a legitimate business. A professional website gives people an easy way to contact you, allows you to showcase a portfolio of work, and helps to build client trust.
6. Other sound business practices
In addition to building a website, a contractor should engage in other sound business practices that reinforce their contractor status. This includes having a branded business (logo, letterhead etc.), providing their own equipment, having professional indemnity insurance, and if possible, working for multiple clients at the same time.
Additional useful resources
What is IR35? Guide to IR35 rules and IR35 changes 2021 (simplybusiness.co.uk)
Still not found what you were looking for?
Please contact us here if you have any queries or need some friendly advice – we’d be more than happy to help. Alternatively, come and visit us in Hazel Grove for a no obligation coffee!