There are changes to the IR35 legislation that come into effect on the 6th April 2020 for private sector contractors that will transfer responsibility from contractors to large and medium companies to assess IR35. The 2020 reform will bring private sector IR35 in line with the public sector, where the reform was implemented in 2017. This has been designed to assess whether a contractor is a genuine contractor rather than a ‘disguised’ employee, for the purposes of paying tax. Essentially IR35 affects all contractors who do not meet HMRC’s definition of ‘self-employment’.
In it’s most simple terms, this occurs when someone who would be an employee of a client but who operates through an intermediary vehicle such as personal services company (PSC) to avoid income taxes and manipulate NI contributions.
Are you ‘Self Employed’?
The first and most important point is to establish whether you are ’employed’ or ‘self employed’ under HMRC’s terms.
‘A person is self-employed if they run their business for themselves and take responsibility for its success or failure.
Self-employed workers aren’t paid through PAYE, and they don’t have the employment rights and responsibilities of employees.’
It can be complicated to determine where you stand with your employment status, here are some of the factors that HMRC will take into consideration when running an IR35 test. However these are only a few and there are many more that would need to be considered. Take these and others into consideration so you can ensure your relationship with your hirer has complete clarity before you begin work.
How you’re paid
Self-employed contract workers tend to be paid on a project-by-project basis, typically when work reaches a specific milestone or is completed.
Running a business of your own accord
Having a website, dedicated office space and employees all demonstrate that you are running a business of your own accord. This reinforces that you’re operating as a self-employed contractor and not offering the services you provide as an employee.
The equipment you use
If a client provides you with equipment to complete a contract, and you don’t use your own, this could result in HMRC viewing you as a disguised employee.
One of the benefits of being a self-employed contractor is that you can work for more than one client at once. However, if you’re deemed to be working exclusively for one client only over a prolonged period of time, HMRC may be able to view this as an employee-employer relationship, meaning you fall within IR35.
As a contractor you need to ensure you operate in a way that mean you are not caught unknowingly caught by IR35 which may result in an additional tax bill. There are measures you can take which will avoid an IR35 investigation including:
Don’t attract HMRC’s attention in the first place
Use a trusted accountant to help with submitting tax returns correctly and on time.
Don’t get confused as an employee
Always start a contract on the clear understanding that the role is for a contractor and not an employee.
Pay for a contract review
Have your contract reviewed by an expert who can pin point any wording that could lead to confusion in clauses when it comes to IR35
Keep a contractor diary
This good practise tip is useful if you end up on the taxman’s radar, HMRC may conduct retrospective investigations of your past contracts. Things that should be noted include telephone logs and email copies that build up a clear picture of your day-to-day working arrangements.
Maintain a contractors relationship with the client
We all like to work within an environment where we feel welcome but avoid being on organisation charts, branded business cards, getting any benefits given to their employees.
When it comes to IR35 there are a few options available to you. It’s important to assess each role and not make a blanket decision so you can determine what options are most suitable for you.