IR35 is the phrase on every contractor’s lips at the moment. But why?
IR35 is UK tax legislation that seeks to ensure that people who supply services to clients via their own company do not avoid paying tax and NI.
In a nutshell, it’s a set of rules that must be followed to determine if a contractor is really a disguised employee rather than truly self-employed.
Passed into law in 2000, the upcoming change on April 6 2017 is not so much a change in the law but a change in who is responsible for enforcing the legislation. Specifically, it applies to contractors working for public sector organisations. If deemed to be nothing more than ‘disguised employees’, they will have tax and NI deducted as if they were employees by the public body.
Implicit in this is the possibility that once deemed to be under IR35, your past employment will be scrutinised and past tax and NI commitments may be revised.
Criteria for determining employee status are varied and sometimes vague. One criteria is ‘control’ – do you have it? For instance, if you’re told exactly when and where to provide services you’re just like an employee, and fall under IR35. Most jobs require you work at the employers workplace; however contractors need to be seen to exercise an element of autonomy, otherwise they’re ‘disguised employees’.
Another crucial determinate of employee status is ‘mutuality of obligation’: the idea that employees have an expectation of a continuous supply of work. Conversely, contractors or self-employed do not and have no expectation once the contract ends.
There are several more criteria which must be met, such as relating to equipment, benefits, substitution; for full details of the conditions, see this guide to IR35 from Contractor Weekly or this detailed article on IR35 from Hamilton & Bradbury.
If you have any concerns about how the changes to IR35 may impact you, we urge you to get in touch with a reputable tax lawyer.
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