Call us on 033 3323 1199 Monday to Friday, 8am - 7pm

£100 Amazon voucher Sign up with Exchequer today and get a £100 Amazon.co.uk Gift Card - Find out more

What is IR35?

IR35 is a complex piece of legislation which generates significant media coverage, leading to lots of discussion and misunderstanding. This makes it difficult for contractors and agencies alike to keep up to date and ensure they’re fully compliant.

Non-compliance, however, can cause huge problems for businesses and contractors. It’s vital to be aware of your responsibilities if you are to continue operating effectively.

This IR35 guide will be regularly updated to explain IR35 simply and give all of the information you require to keep on top of this complex piece of legislation.

What is IR35?

In short, IR35 is a piece of legislation aimed at cracking down on businesses and contractors who misclassify employees as self-employed workers and therefore underpay tax and National Insurance.

Originally introduced in 2000, IR35 has been modified regularly in the time since. The biggest changes, however, have appeared in more recent times, with new regulations for the public sector being rolled out in 2017. Following the completion of a public consultation in August 2018, the public sector changes are now scheduled to roll out to the private sector in April 2020.

Why was IR35 introduced?

IR35 was introduced to tackle the emerging issue of what HMRC refers to as ‘disguised workers’. The ‘Friday to Monday’ phenomenon is the most common example of this and describes incidents where a worker ‘leaves’ a business on a Friday, before continuing their role as a contractor through a limited company the following week.

Often, the issue isn’t this clear-cut. Many businesses will hire people who are employees in all but name yet are employed through a limited company on a contractor basis. IR35 sets out strict guidelines on when this is and isn’t acceptable in an effort to stop people or businesses taking advantage of the potential to do this.

Your typical law-abiding contractor should have no real concerns regarding the recent changes. Many businesses, however, hire employees as contractors to skirt paying employer national insurance or providing other benefits required of them. It is in cases such as this where the latest IR35 evolution could cause serious concerns for companies and contractors.

The IR35 rules

Although IR35 is a complex piece of legislation, there are some key elements you can consider to establish if you are operating within IR35 regulations:

  • The degree of control exercised by a client over the services completed. This is typically broken down into four key elements: does the client control the location of where the work is completed? Can the client specifically dictate to the contractor when tasks must be completed? Can the client continually allocate different tasks to the contractor? Is the client providing detailed instructions on how the work should be completed? If any of these four elements are present, HMRC could make a case that the contractor is under the client’s control and falls inside IR35.
  • Mutuality of obligation is a key determining factor surrounding IR35. Quite simply, an employer ensures that their employees have a consistent stream of work whilst relying on employees to complete that work. A genuine self-employed contractor, however, will finish with no expectation of further work, nor does the engager need to provide work.
  • Typically, self-employed people will provide their own equipment, whereas an employee will expect to have equipment provided by the business. The more essential your equipment is to the work being carried out, the more important this factor becomes
  • Taking a financial risk is a major deciding factor when establishing whether someone falls under IR35. Anyone taking a personal financial risk on a project, whether this is hiring their own equipment, hiring assistance or having the opportunity to increase their own profit from sound management of a task will be classified as self employed except for very rare circumstances
  • Contractors differ from employees in that they enter into a contract to provide a service, rather than specific skills. As such, any contractor has the right of substitution, enabling them to provide a substitute or helper to provide the expected service
  • A contractor must also not be seen as part and parcel of any organisation they are providing service for. In essence, this means that contractors should not be on any lists of employees, be entitled to any staff benefits or be subject to performance reviews or disciplinary action.

Although not an exhaustive breakdown of the specific legalities surrounding IR35 compliance, these are the key factors any business or contractor should be aware of when establishing if they are operating within the boundaries of IR35.

IR35 support

Of course, not everyone wants to take the time to worry about this legislation. If this is the case, or you want to be completely sure that you are operating within the law, you can contact a member of our specialist team who will be able to simplify the process for you and offer guidance and reassurance.

Call us on 033 3323 1199.

 

 

Considering switching accountants?

We can help make the switch smooth, quick and hassle free.

Get Started
freeagent premium partner logo icaew chartered accountant logo it contracting logo