You may have read that the government are changing the rules relating to IR35 with effect from 6th April 2020. So what is IR35 and what are the changes?
What is IR35?
IR35 or ‘off-payroll working’ is a set of rules introduced by the government in 2000 designed to stop workers claiming to be contractors for tax purposes when they are actually working as if they are employees. The advantage of working as a contractor is reduced tax and national insurance payments and the government say that, if it wasn’t for you limited company, do you operate as if you are an employee? If you do, then you should pay tax and national insurance accordingly.
So what’s changing?
Prior to 6th April 2020, it was down to you as a contractor to decide if you fall inside or outside the IR35 rules and pay the appropriate taxes and national insurance. From 6th April 2020, the onus is now on the person using your services to decide if you fall within the rules.
How do I know if I am inside or outside IR35?
This is the tricky part. HMRC have an online tool called the “Check for Employment Status for Tax” which can be found here, this gives you a guide but is by no means definitive and there have been many complaints that it often gives an inconclusive answer. Also, HMRC will look at what happens in practice as opposed to what your contract says so it can only be used as a guide.
Some of the tests to be applied to your contract to determine the status include:
Control – What degree of control does your engage exercise over you including where, when and how you work.
Substitution – Can you send someone else to do the work or does it have to be you?
Mutuality of Obligation – Does the engager have to provide you with work and do you have to accept it?
Financial Risk – Do you have to correct errors at your own expense?
Equipment – Do you have to provide your own equipment?
Other work – Can you take on other work for other clients at the same time?
How do you fit into the organisation – Do you have a desk and company email address? Do you look like an employee tom an outsider?
As you can see it is a complex area to determine if you are inside or outside of IR35 so expert advice should be sought.
So what do I do now?
We have found that the major issue that these changes to the rules has caused is that engagers are taking a blanket approach and placing all of their contractors inside IR35 to avoid administration or liability issues. Some are making their contractors employees, saying you have to work via an umbrella company and some are simply terminating contracts,
The first step is to talk to the people contracting you to see what approach they are taking and then speak to your accountant about the best course of action.
If you would like help with this or any other tax matters simply get in touch and we would be happy to have a chat.